POBO: Less fun than a YOYO, more relevant for Multinationals

I’m hearing more and more conversations mentioning Payments On Behalf Of (POBO) and there seems to be no coincidence that post-SEPA, this concept is coming to the fore.  In my last blog, I discussed how a global pharmaceuticals company implemented a POBO structure to do just that. In this blog, I’ll go through the basics and discuss what POBO is, how it works, and how it can help.

What is it?

POBO, or Payments-on-Behalf-of, refers to multinationals that make payments centrally on behalf of their multiple subsidiaries or business units. Corporations that have already gone through a payments centralisation exercise are increasingly seeing a shift in how those payments are actually made as a natural next step.

How does it work?

A subsidiary / business unit will, rather than making a payment to a supplier by directly instructing their bank to transfer funds from their account (via a payment message), instead issue a payment request into their centralised Payment Factory to handle.  Firstly, the Payment Factory determines whether that payment request will result in an actual payment being sent to the supplier or whether, in the case of inter-company payments, there can be an internal book transfer.  In the cases where external payments still need to be made, these will then be made by the global treasury / controlling entity from their own bank accounts.  This is Payments on Behalf.  As the subsidiary itself is not making payments it no longer needs to hold its own bank accounts for this purpose.  This creates an opportunity to consolidate the number of banking partners and drastically cut down on bank accounts, greatly reducing bank fees.  It also has the potential to enhance the cash management capabilities of the business by concentrating / managing funds across a much smaller footprint and being able to more easily access and use spare cash.

Finally, circling back to the point about SEPA — it’s not that I can’t help talking about it.  But, given that for large corporates, the tactical adoption is SEPA is done, POBO is a serious candidate as the solution to getting rid of the many Euro accounts that will be spread across a typical company’s different subsidiaries.