1. Treasury Organisation

2. Treasury Organisation
Agenda
Centralised vs Decentralised
Payment factories
Collection factories
Re-invoicing centre
Factoring centre
In House Bank
Shared service centre

3. Treasury Organisation
Move towards centralisation of Treasury
Developments in technology, ERP and TMS
Regulatory environment and good governance
Different levels
Geographic
Product line or business division
Customer type, e.g. corporate/consumer
Policy making

4. Treasury Organisation Influencing Factors
Size of company
Industry norms e.g. retail sales distribution vs decentralised manufacturing
Nature of cash flows e.g. electronic vs paper
Geographic distribution, time zones, communications

5. Treasury Organisation Influencing Factors
Business culture e.g. active acquirers
Use of technology
Location of expertise
Need for control

6. Treasury Organisation
Disadvantages of a decentralised organisation
Inability to leverage economies of scale
Duplication of functions
Many different systems to support
Cash management activities e.g. netting, interco lending etc may not be possible
Loss of visibility of information resulting in delayed or incomplete reporting
Lack of control for risk and liquidity management
Recommended reading: The pros and cons of Treasury Centralisation, Gtnews Feb, 2010

7. Treasury Organisation
Disadvantages of a centralised organisation
Loss of autonomy and ownership of results by business units
Local vendor and bank relationships will suffer locally
Need for increased communication and coordination with head office
Lower morale/lack of interest in operating units due to reduced responsibilities and concerns about job losses

8. Treasury Organisation
Central policy, local execution
Centralised execution
Regionalised execution, central policy

9. Treasury Organisation Regional
Why manage in the region?
Time zones/contact time/cut-off times
Same day value
Local expertise
FX markets/environment
Potential tax savings
Better pricing
Lower staff costs

10. Treasury 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 file
Single electronic gateway
Covers central bank reporting
Handles inter-company transactions
Receives all account and transaction information from the bank(s) and distributes to subs for reconciliation.

11. Treasury Organisation Payment Factory
Significant cost savings from reduction in number of banks
Reduction in overall cost of payments
Centralised handling of FCY payments
Cross border payments can be re routed and re formatted as domestic
Use of lower cost ACH
For subs, new business does not necessarily mean new bank accounts
Better security and more accurate cash flow forecasting
Central information can lead to better liquidity and risk management

12. Treasury Organisation Collection Factory
Same concept as Payment Factory applied to collections BUT
May or may not give the same benefits
Will 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.

13. Treasury Organisation Re-invoicing Centre
Subsidiaries buy and sell in their own currency from the central treasury or in house bank
FX risk is transferred to the re-invoicing centre
Enables leading of payments to cash poor subsidiaries

14. Treasury Organisation Factoring
Subsidiary sells to sister company (or third party)
Sells invoice to in house factoring company
Allows subsidiary to fund itself and removes FX risk to centre
Payment due is made direct to factoring centre

15. In House Bank IHB
An IHB is a vehicle where group treasury acts as the primary source of all banking services to operating units at arms length
Transacts aggregated business with ‘real’
banks
May be part of centralised or decentralised structure

16. IHB Advantages Economies of scale Reduces bank margins and costs
Cash Management techniques e.g. netting, cash pooling, intra group funding
Reduces number of bank transactions
Treasury professionals
Profit centre?

17. IHB Disadvantages Group still reliant on local staff
Cash forecasts to identify future surpluses and deficits
To identify currency exposures
To ‘play the game’
To actually carry out transactions
Reduces local involvement and commitment
Local banks lose business

18. IHB Functions Liquidity management Inter-company loans and deposits
Cash pooling
Netting (cashless)
Inter-company loans and deposits
In house factoring
Re-invoicing
Risk management (matching)
Advice and consultancy
Long term funding and investments

19. IHB Typical Structure IHB HKD IHB EUR A/c A/c in Hong In Brussels Kong
Sub-accounts for subsidiaries Sub-accounts for subsidiaries
Belgium HK UK USA Belgium HK UK USA
- Control
- Bookeeping
- Interest calcs
- Statements
Sub-accounts for subsidiaries Sub-accounts for subsidiaries
Belgium HK UK USA Belgium HK UK USA
IHB EUR A/c
In Brussels
IHB HKD
A/c in Hong
Kong
Central
Treasury
IHB USD A/c
In New York
IHB GBP A/c
In London

20. Shared Service Centre
Shared service centre acts as a single business unit that performs common finance and administrative functions
Delivers services to subs or other business units regulated by service level agreements

21. Shared Service Centre Functions
Human resources
Facilities management
Procurement
Internal audit
marketing
Travel arrangements
Tax and so on and so on

22. Shared Service Centre Cash Management Functions
Bulk payments, especially international
Local in country paper collections
E-commerce applications e.g. einvoicing
Foreign exchange processing
Account reconciliation
Trade finance
Tax