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.
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.