Using Virtual Accounts to Optimise Cash Management
by Rainer Stirn, Head of Treasury - Cash Management, B. Braun Melsungen AG
B. Braun’s focus on harnessing technology innovation to develop high quality solutions and services is not only apparent in the design and delivery of its healthcare solutions. In treasury too, B. Braun is embracing the latest technologies to achieve its liquidity, risk and operational objectives, and deliver the best possible solutions to group companies. In this article, Rainer Stirn, Head of Treasury – Cash Management discusses how treasury has adopted UniCredit’s virtual account solution to optimise its in-house bank and payments factory, and simplify cash management.
Treasury and cash management organisation
We have a group treasury organisation based at our headquarters in Melsungen, Germany that acts as a service centre to our group companies around the world, with a regional treasury centre located in Singapore. Our primary objective is to ensure that group entities meet their financial obligations at the lowest cost whilst remaining within our risk parameters. We engage in all aspects of liquidity management, financing, asset management, risk management (e.g., FX and interest rate) and bank relationship management.
One of the primary ways in which we achieve our treasury objectives is through our in-house cash centre (in-house bank) and payments factory. Our in-house cash centre carries out a range of activities on behalf of group companies, in order to manage our liquidity and risk more effectively at a group level and minimise both operational and funding costs. We use the in-house cash centre to make payments on behalf of group companies and provide intercompany financing, for which we maintain intercompany accounts. We also perform tasks such as group-wide bank account management.
We use SAP for both our in-house cash centre and wider treasury activities. The solution (which includes SAP’s in-house cash and transaction management) continues to be very effective in achieving our objectives. For example, we are able to manage our intercompany accounts efficiently, including automatic calculation of interest and transaction-based fees, with comprehensive reporting. We have a harmonised ERP environment, allowing a single view of master data such as settlement instructions. This is very helpful in achieving a high level of straight-through processing (STP) and streamlining in-house bank communication for which we use SAP’s iDOC format.
Identifying new opportunities
As a global business with over 200 entities operating in more than 60 countries, we have an extensive cash management infrastructure, with a large number of external accounts and cash pooling arrangements. While implementing an in-house bank with a payments on behalf of (POBO) model would, in principle, enable us to rationalise our accounts, we were prevented from doing so by the need to make payroll payments in each country, which were managed locally by in-country HR departments. We discussed the issue with our partner banks, and were particularly attracted to UniCredit’s virtual account solution. This would allow HR departments to send a file to treasury, which would then be paid from a single external bank account, with each entity’s payments reflected on an intercompany account using the virtual account number contained in the IBAN to route the payment correctly, as described further below. We recognised that this solution would offer considerable advantages for our business. Furthermore, UniCredit’s solution would also enable us to use virtual accounts on incoming payments, in both euros and foreign currency, which would further enable us to rationalise and simplify our bank account and cash management structures.