Treasury Centres, In-house bank and Shared Services Centre. What are the differences?

I received a question asking me what is the difference between Treasury Centre (TC), In-house bank  (IHB) and Shared Services Centre (SSC).

One similarity between TC, IHB and SSC is centralizing in one location. As for the difference, we will understand more if we look into what objectives and activities for each of them.

Treasury Centres (TC)

TC is responsible for managing and strategize its company liquidity by monitoring their cashflows, to decide if require additional capital through borrowings or capital raises. TC is also responsible for managing investment assets, internal processes, FX and making decisions on changes to working capital. 

Roles of TC includes the following below:

1. Cash forecasting
• Measuring the accuracy
• Determine the information sources for the forecast
• Establish controls, policies and procedures of cash forecast
• Automating cash forecasts
2. Cash Management
• To manage the flows (payments and receivables) with objectives on costs savings and effectiveness
• To manage balances with objectives to reduce liquidity & credit risk, cash balances efficiencies
3. Investment Management
• Managing surplus funds not required for operational activities or bank obligations (fees, overdraft)
• Consider the types of investment, strategies, goals and criteria
4. Treasury risk management
• Establish and allow better overall control over group-wide, information and policies on risk management
• Better pricing on FX hedging and better pricing
5. Managing banking relationships
• Negotiate consolidate pricing
• Concentrate on core banks to strengthen the relationship
6. Raising capital
• To raise capital via borrowings or equity issuance
• Working with sell side (bank) to offer company bond and equity offerings
7. Granting of credit
• Manage and establish procedures to grant credit to customers/suppliers to have some control on working capital locked in receivables
8. Maintaining credit rating agencies relationships
1. Treasury responds to credit rating agencies and provides information to maintain their credit rating which will help in getting cheaper debt

In-House Bank (IHB)

IHB is often used and refers as treasury centre as its solutions offer centralized payment flows and balances by executing all flows through the operating companies’ internal multi- currency accounts from 1 location.

IHB is actually a corporate tool for financing purpose using company resources for treasury functions. It is used to execute payment or receivables flows by performing netting on all payments from the group which resulted in savings as fewer payments are executed. 

Cash visibility is improved as balances are maintained in inter-company accounts instead of decentralized individual accounts

As for balances, IHB can leverage balance tools such as cash concentration, notional pooling, interest optimization and managing intercompany loans. Tax needs to be considered as well when executing intercompany loans within the group entities.

Shared Services Centre (SSC)

If IHB is used for execution, SSC is responsible for processing the flows. In my previous post on SSC, it  is centralizing operational & back-office routines such as making payments, collecting receivables, reconciliation, confirming & executing, reporting, 

In transaction banking perspective, its role involves processing payments commonly x-borders payments, reconciliation, FX processing, invoicing etc. My previous post on SSC can be found here.

Summary

In summary, TC is more focusing on the strategies to manage liquidity. IHB is a financing tool employed by TC for cash management and used for execution on behalf of entities. SSC is focusing on processing for payments/collections, reconciliation, operation and backoffice matters.