Is in-house banking the right solution for you? Here are 5 things that help you determine if a modern in-house bank is well-suited for your organization’s cash management needs.
An in-house bank is not the right choice for every organization. But then again, for those organizations which are well-suited for it, the benefits to be gained in terms of global cash management are considerable.
If you want to read more on the key features and functions of a modern in-house bank solution, take a look at our previous blog where we discussed the topic in greater detail. For now, let’s focus on the factors you should consider when determining whether in-house banking is the right solution for your organization.
Number of subsidiaries
Usually, the higher the number of subsidiaries or entities your organization has, the more value you can gain from an in-house bank. A large, multinational corporation that has already embarked on the journey toward deeper centralization of cash management processes should have at least considered in-house banking as an essential part of the plan. If your goal is real-time visibility over cash at group level, a modern in-house bank gives you the broadest set of tools for increasing control over the cash flow processes and managing working capital efficiently.
Number of banking relationships
An in-house bank that is used to manage the corporate account structure can replace a multitude of subsidiaries’ external bank accounts with internal accounts, and even make it possible to reduce the number of banking partners at group level. In effect, the more banking relationships your organization has and the more complex the banking environment is, the more your organization can save on transaction and management costs by implementing an in-house bank..
Internal transaction volumes
Take a look at the volume of internal transactions in your group. The higher the volume of internal invoices, the more you stand to gain if you establish an in-house bank to manage internal payments. A modern in-house bank setup allows you to automate your internal payment process with a high straight-through-processing rate, allowing faster payments. With internal transfers, you’ll avoid value date losses and most importantly, transaction fees.
Number of currencies
In many corporations, the risk management for a single currency might be carried out in several subsidiaries. This leads to work overlap and unnecessary hedging transactions and costs. When group treasury has a clear overview of the whole organization’s foreign exchange exposure and currency position, the necessary actions to hedge the FX risk can be taken at group level. An in-house bank also helps save currency exchange costs as internal multi-currency payments, for example, can be made internally.
Number of subsidiary loans
Are the subsidiaries in your organization frequently taking out local loans to run their operations and projects? If this is the case, you could benefit greatly from the cost and process efficiency a modern in-house bank can bring by enabling distribution of cash for operations centrally. As a result, you can fix the imbalance that arises, when some subsidiaries hoard surplus cash to their bank accounts and invest it at unfavorable rates while others need to lend it at high rates.
Watch our on-demand webinar where we explore the key factors to consider when deciding whether to set up an in-house bank. Or to learn more about the functionalities and benefits of a modern in-house bank, download our in-depth whitepaper Take Control – In-house bank at the core of proactive cash management.
Jaakko Kilpinen has over 15 years of experience in corporate cash management and has deep expertise in cash forecasting, netting, and in-house banking. Jaakko has previously held e.g. a position as Group Treasurer in a publicly listed Finnish company. Currently Jaakko works as a Solution Manager at OpusCapita.