2Treasury Organisation AgendaCentralised vs DecentralisedPayment factoriesCollection factoriesRe-invoicing centreFactoring centreIn House BankShared service centre
3Treasury Organisation Move towards centralisation of TreasuryDevelopments in technology, ERP and TMSRegulatory environment and good governanceDifferent levelsGeographicProduct line or business divisionCustomer type, e.g. corporate/consumerPolicy making
4Treasury Organisation Influencing Factors Size of companyIndustry norms e.g. retail sales distribution vs decentralised manufacturingNature of cash flows e.g. electronic vs paperGeographic distribution, time zones, communications
5Treasury Organisation Influencing Factors Business culture e.g. active acquirersUse of technologyLocation of expertiseNeed for control
6Treasury Organisation Disadvantages of a decentralised organisationInability to leverage economies of scaleDuplication of functionsMany different systems to supportCash management activities e.g. netting, interco lending etc may not be possibleLoss of visibility of information resulting in delayed or incomplete reportingLack of control for risk and liquidity managementRecommended reading: The pros and cons of Treasury Centralisation, Gtnews Feb, 2010
7Treasury Organisation Disadvantages of a centralised organisationLoss of autonomy and ownership of results by business unitsLocal vendor and bank relationships will suffer locallyNeed for increased communication and coordination with head officeLower morale/lack of interest in operating units due to reduced responsibilities and concerns about job losses
8Treasury Organisation Central policy, local executionCentralised executionRegionalised execution, central policy
9Treasury Organisation Regional Why manage in the region?Time zones/contact time/cut-off timesSame day valueLocal expertiseFX markets/environmentPotential tax savingsBetter pricingLower staff costs
10Treasury Organisation Payment Factories Central facility set up to handle a group’s payment orders. Accounts payables function may continue to be handled at local level.Gather payment instructions into one fileSingle electronic gatewayCovers central bank reportingHandles inter-company transactionsReceives all account and transaction information from the bank(s) and distributes to subs for reconciliation.
11Treasury Organisation Payment Factory Significant cost savings from reduction in number of banksReduction in overall cost of paymentsCentralised handling of FCY paymentsCross border payments can be re routed and re formatted as domesticUse of lower cost ACHFor subs, new business does not necessarily mean new bank accountsBetter security and more accurate cash flow forecastingCentral information can lead to better liquidity and risk management
12Treasury Organisation Collection Factory Same concept as Payment Factory applied to collections BUTMay or may not give the same benefitsWill depend on nature of the accounts receivable and location of accounts.Think about small value, high volume cross border. May be issues for customers paying into accounts not owned by the payee.
13Treasury Organisation Re-invoicing Centre Subsidiaries buy and sell in their own currency from the central treasury or in house bankFX risk is transferred to the re-invoicing centreEnables leading of payments to cash poor subsidiaries
14Treasury Organisation Factoring Subsidiary sells to sister company (or third party)Sells invoice to in house factoring companyAllows subsidiary to fund itself and removes FX risk to centrePayment due is made direct to factoring centre
15In House Bank IHBAn IHB is a vehicle where group treasury acts as the primary source of all banking services to operating units at arms lengthTransacts aggregated business with ‘real’banksMay be part of centralised or decentralised structure
16IHB Advantages Economies of scale Reduces bank margins and costs Cash Management techniques e.g. netting, cash pooling, intra group fundingReduces number of bank transactionsTreasury professionalsProfit centre?
17IHB Disadvantages Group still reliant on local staff Cash forecasts to identify future surpluses and deficitsTo identify currency exposuresTo ‘play the game’To actually carry out transactionsReduces local involvement and commitmentLocal banks lose business
18IHB Functions Liquidity management Inter-company loans and deposits Cash poolingNetting (cashless)Inter-company loans and depositsIn house factoringRe-invoicingRisk management (matching)Advice and consultancyLong term funding and investments
19IHB Typical Structure IHB HKD IHB EUR A/c A/c in Hong In Brussels Kong Sub-accounts for subsidiaries Sub-accounts for subsidiariesBelgium HK UK USA Belgium HK UK USA- Control- Bookeeping- Interest calcs- StatementsSub-accounts for subsidiaries Sub-accounts for subsidiariesBelgium HK UK USA Belgium HK UK USAIHB EUR A/cIn BrusselsIHB HKDA/c in HongKongCentralTreasuryIHB USD A/cIn New YorkIHB GBP A/cIn London
20Shared Service CentreShared service centre acts as a single business unit that performs common finance and administrative functionsDelivers services to subs or other business units regulated by service level agreements
21Shared Service Centre Functions Human resourcesFacilities managementProcurementInternal auditmarketingTravel arrangementsTax and so on and so on
22Shared Service Centre Cash Management Functions Bulk payments, especially internationalLocal in country paper collectionsE-commerce applications e.g. einvoicingForeign exchange processingAccount reconciliationTrade financeTax