Corporates are increasingly recognizing the numerous benefits of channeling payments and/or collections through a single legal entity, making payments on-behalf-of (POBO) or collections on-behalf-of (COBO) multiple group entities. By leveraging a single legal entity, supported by an in-house bank (IHB), treasurers can rationalize their accounts and simplify cash management structures.

ON-BEHALF-OF STRUCTURES

In traditional set-ups, payment factories automatically initiate outgoing payments from the accounts owned by the participating group entities. The parties instructing the payments are the group entities, with the payment factory acting as a technical and operational processing hub. When a payment factory changes to the payments on-behalf-of model, both instruction for and settlement of payment is made from accounts owned by the payment factory. The group entity would simply be mentioned in the payment reference field as the ordering party on whose behalf the payment factory initiates the transaction. The external bank accounts of the group entities are replaced by internal accounts operated by the payment factory in the group's ERP system. The payment factory will act on terms pre-agreed upon with each group entity. The payment factory will then initiate a payment to the third party in order to fulfill such claim. Collections on-behalf-of is similar, with the collections factory collecting on behalf of the group entities via the collections factory's external bank account.