POBO it's actually referring to Payments On Behalf Of. It is actually a method of centralizing payments initiation to maximize cost savings & operations efficiencies usually through payment factories or Shared Services Centres.
Payments are made from the 1 orderer's account held in a central location on behalf of their subsidiaries or entities rather than from individual accounts held in the name of the ultimate orderer.
To allow the beneficiary to identify and reconcile the payment, usually, the ultimate orderer (entity on whose behalf a payment is made) is identified in remittance information for older formats eg: SWIFT MT. For ISO20022, ultimate orderer name can also be display under Ultimate Debtor <UltmtDbtr> element with details under remittance information <RmtInf>.
What is COBO?
The concept of COBO is similar to POBO. The difference is the collection of receivables on behalf of other entities and reconciles centrally.
One common solution for COBO involves Virtual Account solution where a corporate maintains one physical account in a centralized location (the collecting entity) and each entity (subsidiary)is provided with a unique Virtual Account number to which customers make payments to.
Operationally, back-office has to reallocate the funds received from several legal entities to the correct ultimate creditor using intercompany accounting. To reconcile the account, the treasury or shared service centre uses the virtual account number to identify the legal entity which collection they collect from and use the account number to automatically reconcile.
What are the benefits of POBO/COBO?
- Centralized payments/collections in one location to better manage the payments outflows and better control of cash
- Reduction of number of accounts opened with banks
- With fewer accounts, admin cost of maintaining the accounts are reduced and achieving economies of scale
- With economies of scale and fewer bank relationship, treasuer can negotiate better pricing
- Fraud risk reduce as treasurer know where the payments are flowing to
What are the challenges for POBO/COBO?
- Not all payments can be centralized by POBO. For example tax payments as they need to pay locally
- Regulatory challenges such as restricted currency, resident/non-resident accounts, WHT, intercompany lending rules & reporting to the central bank
- Company internal process
- Operating hours of the shared service centre or treasury centre which created time differences for different countries
- No standard formats or process for COBO solutions as each bank in different jurisdictions has different ways of maintaining the collection information
What are the objectives of cash management to consider POBO & COBO?
- If you are leveraging on technology to centralize the operations
- If you are looking to reduce costs by reducing resources in each country and concentrate in 1 country
- If you are looking to maximize liquidity management
- If you want to reduce the number of accounts and banking relationships to achieve economies of scale
- If you looking to standardize working capital SLA and metrics with specific KPI
- Improve payment efficiency and automation
- Improve collection efficiency by automating reconciliation and posting to sub accounts quicker
https://www.treasurers.org/ACTmedia/Oct13TTdeutsche38.pdf
https://www.theglobaltreasurer.com/2016/01/27/the-benefits-and-challenges-of-pobo-and-cobo/
https://www.ingwb.com/insights/articles/innovation-and-digitisation-the-treasurers-imperative
https://cib.bnpparibas.com/adapt/putting-pobo-into-practice_a-2-12.html
