Cash & Liquidity Management

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Extending the Value of BAT's In-house Bank British American Tobacco describe the multi year, multi disciplinary project they undertook to create a target operating model across the organisation, which involved maximising visibility and control over liquidity and risk positions, and optimising the operational efficiency of transaction flows.

Extending the Value of BAT’s In-house Bank 

Extending the Value of BAT’s In-house Bank

By Philip Stewart, Head of Cash & Banking, British American Tobacco plc

 
British American Tobacco (BAT) has been engaged in a multi-year, multi-disciplinary project to create a target operating model across the organisation. As part of this, we have undertaken a comprehensive global treasury centralisation and in-house banking project in partnership with Deutsche Bank to maximise visibility and control over liquidity and risk positions, and optimise the operational efficiency of our transaction flows. Key to the success of this initiative has been the use of on behalf of (OBO) techniques and Deutsche Bank virtual account and virtual IBAN solutions, as this article outlines. 

Project background

A key strategic initiative over recent years has been project ‘TaO’, underpinning BAT’s global strategy and supporting strategic pillars of productivity and growth. TaO introduced a new target operating model enabled by one instance of SAP across all markets within the group. 

In the past, we had a decentralised treasury model with fragmented systems and disparate processes, resulting in a lack of visibility and control over cash. Through this project, however, we were able to: centralise treasury activities more fully, migrate all transactional activity to our finance shared service centre (FSSC) in Bucharest; introduce an in-house bank for intercompany flows; improve visibility and control over cash /FX exposures; adopt a consistent set of treasury key performance indicators (KPIs), and enhance cash flow forecasting. We also reviewed and refined our banking panel and rationalised our bank accounts, standardised payment formatting, payment processes and bank statement processing. 

Extending the value

Having established the foundations of a centralised treasury and in-house bank, the logical next step was to extend the reach of the in-house bank into third party payments and collections. This involved adopting payments on behalf of (POBO) and collections on behalf of (COBO) techniques (described in Box 1), with a central treasury vehicle (BAT International Finance plc) acting as agent. We selected Deutsche Bank as our partner based on our trusted relationship and the bank’s high quality solutions and footprint, but also specifically due to the bank’s proven virtual account/IBAN solutions, with large volumes of transactions already passing through virtual accounts. In addition, we found that not all banks were able to provide MT940 reporting on virtual accounts which was essential for us in minimising disruption to the SAP template while integrating data for automatic reconciliation.

The project spans Asia and Europe with a different structure in each region to reflect different distribution models. In both regions, we have replaced physical bank accounts with virtual accounts/IBANs (see box 1) with comprehensive visibility and integration of bank account information via MT940 reporting into SAP for reconciliation and account posting.

In Asia, BAT International Finance operates on behalf of structures for group entities in Hong Kong, Singapore, Australia and New Zealand. In Singapore and Hong Kong, we have virtual accounts on a hierarchical basis in the name of both participating entities and individual customers. Each customer has a unique virtual bank account number. This is very helpful in identifying incoming flows more precisely and reconciling and posting these payments promptly. 

In Europe, POBO and COBO techniques have been rolled out across 20 countries. We sell to a small number of distributors in each country, so we have a virtual IBAN per entity with the flexibility to introduce additional layers to customer level as required.

 

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