Contemporary technology has now brought scalable in-house banking solutions into the budget range of many more companies. So, who qualifies for an in-house bank?
Today’s efficient corporate treasury technology means that organizations with an annual turnover of less than EUR 1 billon can now enjoy all – or some – of the benefits of running an IHB, provided that their treasury requirements reflect the appropriate levels of financial risk exposure and complexity.
In-house banking: not just for big business
Modern tools have radically reduced the costs and effort needed to set up an in-house bank, so more and more medium-sized organizations can join the multinationals and operate IHBs in line with their functional business requirements – and their budgets.
So, the threshold for justifying an IHB project has fallen, and more and more treasuries globally are taking the opportunity to improve the quality and scope of treasury service provision to their parent organization.
Today’s scalable solutions enable companies just to implement those IHB components which provide the most useful returns based on the actual challenges being experienced, so they can selectively target the most beneficial IHB functions to implement, and keep costs under control.
Who needs an in-house bank?
Of course not every company needs an IHB. If an organization has just a few subsidiaries and bank accounts, and limited FX exposure, an IHB is unlikely to be justified. However, if financial transaction volumes and risks are found to be growing, IHB investment may well be justified, to secure and formalize aspects of treasury, enhance control, reduce risks and secure profits and revenues. Ultimately it’s the level of the underlying risk that can justify an IHB investment.
Benefits for general finance
The implementation of an IHB tightens and formalizes many aspects of a corporate’s treasury operations, leading to gains in control, efficiency and transparency, and to the reduction of operational and perhaps also market risk through improved internal and external dealing and payment processes. This general procedural improvement is also often related to other initiatives to enhance the management of finance operations, as IHB process, discipline and technology is extended beyond the traditional boundaries of the treasury department. Examples include a range of working capital optimization projects in areas such as debtor and receivables management, which essentially work to accelerate invoice collections. IHB functionality may also be usefully extended to performing operations on behalf of business units (‘POBO’ and ‘ROBO’), making further use of treasury’s professional expertise for improving the quality and efficiency of the organization’s cash management.
This is an abstract of an article first published on gtnews. You can download the complete text on our website: In-house banking: not just for big business.