Arvind Ronad
08 January, 2013 - 13:45. Asked by: Arvind Ronad Payments on behalf of (POBO) What are the advantages of a POBO and are there any live examples ?
Posted: 11 Jan, 2013 - 16:39
Is there any definition of POBO / Payments On Behalf Of? First page of Google SERP was no help.
 
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Posted: 12 Jan, 2013 - 06:26
On-behalf arrangements replace the conventional practice of owning accounts for payments and
collections, and then participating in a central cash pool, usually managed by a central treasury unit.
Instead, every transaction activity associated with either payments or collections, including the
corresponding bank accounts, is assumed by the agent. In the process, the agent also gains direct and
immediate control of any surplus liquidity across the organisation and is also able to impose a service fee,
commensurate with the service it provides. The participating business units are paid credit interest on
any surplus funds or charged debit interest on any deficit.

 
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Posted: 12 Jan, 2013 - 11:15
Okay, thanks. I've come across the rough equivalent of this practice in the Middle East several years ago. Not sure if it's still in vogue but collections and payments of individual SBUs used to be "swept" to a central cash pool managed by the company's corporate treasury department. Corporate treasury used to place surplus funds in the overnight money market, both locally and overseas. Apart from keeping SBUs on a tight leash w.r.t their cash flow projections, the practice yielded fee and interest income for the company. It was said that one large conglomerate used to make more net income from its treasury ops than all operational businesses did together.
 
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Posted: 14 Jan, 2013 - 13:51
Yes you are right! POBO eliminates bank a/cs at unit level as suppliers are paid and receivables collected by the central treasury (In House Bank). Besides ops efficiency, better w/c mgt, the arrangement achieves better control & risk management.
 
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Posted: 09 Feb, 2013 - 09:22
see http://www.gtnews.com/Articles/2013/Payment-on-behalf_of_(POBO)__A_Trio_of_Approaches.html
 
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Posted: 14 Feb, 2013 - 07:46
Thanks Neil.
 
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Posted: 25 Feb, 2013 - 07:25
Hi all, in connection with the POBO and COBO, what are the trends of adaption by the Corporate and SME segment. Any statistics are really appreciated.
 
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Posted: 25 Feb, 2013 - 08:47
Hi Srini,
The concept of 'centralisation of treasury' has just caught up (post 2008 crisis) and corporates in Europe were fist to try & adapt POBO/COBO though there are no data to show. Free movement of cash (currency) between countries/geographies is one of the pre requisite; Europe is most conducive. In Asia, every bank is interested in the 'idea', no one really is willing to try this out!!.

In Sub-Saharan Africa, the concept is being tried in a different way.
 
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Posted: 25 Feb, 2013 - 09:24
@SriniC: Nice to reconnect with you via Finextra. Since my last comment in Jan about the use of this business practice in the Middle East for several years, I happened to reconnect with an old colleague who now happens to be the CFO of a large conglomerate. He confirms that this practice is very much prevalent in the ME even today. Not sure if this is the type of stats you're looking for but (a) Almost all large, multidivisional conglomerates in this part of the world follow this practice (b) *All* collections from operating businesses go to the central pooled account first, so it's not as though only a certain portion of operational collections are swept to corporate treasury (c) In some companies, operating businesses are charged interest at market rate for any excess withdrawals from the central pool.
 
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Posted: 25 Feb, 2013 - 09:25
@SriniC: I forgot to mention that POBO was practiced in the Middle East way back in the early 1990s, if not earlier.
 
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Posted: 25 Feb, 2013 - 10:23
Many thanks Ketha and Arvind.

Useful information.. Y'day I read the GTNews, 2013 Payments Survey Report and it is high lighting about 28% of the adaption by some companies and other 22% are ready to adapt.
 
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Posted: 25 Feb, 2013 - 11:11
Arvind, you are quite correct there are regulatory hurdles, indeed also in Europe. Provider firms must have the right regulatory approvals in place. Detailed knowledge of the regulations and business processes (e.g. data for reconciliation) per country are needed. Some firms specialise in these areas - and though this isn't a forum for advertising etc, it's probably fair to say that firms like the one I work for are amongst the most likely to be able to offer these kinds of services - along with banks.
 
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Posted: 09 Aug, 2013 - 12:34
Maybe somewhat silly reference. But isnt POBO another way of saying the ICM activities which has been in use for long time to effectively perform Cash Management activities?
 
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