A Pioneering Approach to Optimising Collections

by Guillaume Flies, Head of Collections, BNP Paribas Cash Management

Many treasurers have taken great strides in optimising working capital and streamlining financial processes, but centralising collections, which arguably brings the greatest advantages, has proved the most challenging. As the timing of incoming payments, and the payment method used by customers, are beyond a company’s control, it is difficult to streamline collection activities or develop economies of scale, particularly as instruments and formats, together with local regulatory and tax issues, can differ so widely across markets.

The barriers to centralising collections are slowly breaking down, for three key reasons: a more harmonised payment landscape; product innovation to address operational challenges; and the ability of banks such as BNP Paribas to support the set-up of domestic, regional or global collection factories.

A compelling value proposition

While there are potential challenges, the benefits of a centralised collections model can be compelling, and often outweigh those of other centralisation projects (Box 1). This is particularly the case when implementing collections-on-behalf-of (CoBo), where one entity collects customer payments on behalf of other group companies. Channelling incoming flows through a single entity and account allows treasurers to maintain fewer bank accounts, simplify account administration and manage liquidity at a group level. A CoBo approach is also a highly effective mechanism to support structures with one single legal entity but having different business units.

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