Complex banking structures can make it incredibly difficult for large multinational companies to control their cash and manage affiliate relationships. For large global companies, in-house banking is an ideal solution to that problem. In-house banking is a way to centralize treasury functions into one entity, which minimizes subsidiaries from having to deal with their own bank.
As the Association of Finance Professionals notes, the benefits advantages of an in-house bank are immense. Companies that leverage in-house banking have discovered benefits like centralized control of cash, cash visibility, less reliance on external funding, and more. With the use of a shared services arrangement and in-house banking software, a company can have complete control over their bank accounts, handle netting of funds between business units, minimize FX costs, lower wire fees and other bank transaction fees, and track cash and balances all in one centralized place.
In-house banking has never been easier with the rise of in-house banking technology, which can significantly streamline IHB management. There is a plethora of solutions to choose from. However, it is very important your treasury team knows what to look for when shopping around.
What to look for in IHB technology
1. ERP integration or embeddedness
To implement in-house banking, your company must choose a tech solution that will execute the functions of the bank. Having an in-house banking solution within the ERP centralizes intercompany payment process where in one place, your company can clear accounts and automate clearing of intra-company and inter-company payments and loans. Most importantly, when you automate these activities all in one place, your team can view data relevant to in-house banking in one place, helping your team highlight problem areas.
2. Robust intercompany settlement capabilities
Within an in-house banking solution embedded into your ERP, your company can execute intercompany payments and auto-settle them against your in-house bank accounts within one solution. Embedded IHB solutions should be able to easily automate the netting of AP and AR invoices across legal entities, which can significantly reduce the transaction fees involved with actual wire or other payments back and forth between those entities. Robust IHB solutions should be able to generate and process IHB statements to decrease the time they spend on reconciliation. Loans can also be managed internally where some embedded in-house banking solutions allow the subsidiary to send loan payments to the parent within the ERP.
3. Automated payment optimization
Through the use of payment factory automation, you can automatically pay on behalf of subsidiaries. When done within an embedded in-house banking solution in the ERP, these payments also trigger auto-generation of journal postings. Payment-on-behalf-of and receivables-on-behalf-of services are also a part of many in-house banking tech solutions where some providers can auto-aggregate payments then route them.
4. Centralized cash pooling
For those looking to enhance their company’s liquidity management, an embedded in-house banking solution can create a centralized cash pooling center all within the ERP. To reduce gains or losses associated with actual cash settlements across currencies, embedded in-house banking solutions often offer ways to eliminate extra FX exchanges across currencies. From the ERP, treasurers can have complete visibility over their cash, which can guide them to determine if they need to deposit cash or withdraw funds according to their company’s financial health.
5. Fraud prevention
Lastly, the most important component of a good in-house banking solution is its fraud prevention framework. Approval processes are incorporated throughout these solutions so that payments are not executed without the approval from the necessary individuals. Since an embedded in-house banking solution is built within the secure ERP which heavily incorporates security roles and permissions, your in-house banking processes will be insulated from potential fraud. For global companies, payment risks are also minimized since cross-border payments can be made within the ERP instead of going through in-country payment processing.
How do you choose an IHB technology provider?
After educating yourself on the benefits and functions of an in-house banking tech provider, your team now has the difficult job of choosing a provider. A good IHB technology provider should cut the time it takes to manage your in-house bank, aggregate relevant data such as AP and AR data, and automate routine tasks. If your company already uses an ERP, you should consider solution providers that work inside your ERP so your treasury team can have real-time data synchronization and connectivity. This allows for the most-to-date information on your company’s cash and banking activity. To pick a solution that best works for you, it is highly recommended to work with an external consultant that guides the selection process.
If your company currently uses Microsoft Dynamics 365 Finance and Operations and are looking for an in-house banking solution, SKsoft Software has a best-in-class in-house banking solution with robust features like intercompany netting for invoices, real-time maintenance of bank balances, automatic bank statement generation, reconciliation of external and intracompany transactions within one system, and more.
If you are interested in learning more about our solution, contact our sales team at sales@sksoft.com.