Our client, a multinational company, manages hundreds of operating companies (opcos) across diverse sectors.
Each opco operates independent bank accounts for various cash management activities including incoming and outgoing cash flows and cash reservations.
The complex financing structure of the conglomerate ruled out the possibility of utilizing physical cash pooling solutions.
The decentralized nature of the client's operations led to significant inefficiencies in cash management, including excessive idle cash across opco accounts, high operational activities for funding opco accounts, and increased banking fees for cash management services.
CashMeasury, in collaboration with the client's ERP team, worked on the implementation of an Inhouse Bank with Payment-On-Behalf-Of (POBO) solution, integrated with the Treasury Management System (TMS).
This innovative approach allowed for:
Consolidation of payment processes, with payment files from the ERP being transmitted via the TMS to the banks.
Debiting parent accounts for opco payments, thus centralizing cash outflows.
Initiation of cash sweeps to and from opcos, factoring in the very-short term cash forecasts for optimal liquidity management.
Booking of POBO payments and cash sweeps in the TMS inhouse bank accounts, enhancing transparency and control.
Support for foreign currency payments, leveraging applicable FX rates for accuracy in cross-border transactions.
Centralized cash management resulted in a significant reduction in idle cash across opco accounts.
Payments were streamlined through parent accounts, reducing the need for individual opco funding.
The client observed a substantial reduction in operational cash management costs. Less labor was needed for allocating cash to operating companies. The centralized cash now allowed for overnight investing in the money market.
