No two businesses are the same. As such, different businesses have different financial requirements and therefore need different organizational concepts. One such concept that has been rising in popularity is in-house banking. For treasurers contemplating utilizing this sort of centralization model, it is important to understand key aspects of in-house banking. What Is It?
In-house banking is a way to centralize financial services within a company. With this concept the corporate treasury offers several services to subsidiaries and acts like a bank to them. Some of the common functions include:
- Cash management
- Cash flow forecasting
- Inter-company payments
- Liquidity management
The in-house bank may perform other duties as well, depending upon the needs of the company and the level that the treasury is prepared to operate at.
What Are the Benefits?
There are a number of benefits that come with a company implementing an in-house bank. Two of the main advantages of this approach are convenience and efficiency. Where in traditional settings the subsidiary would approach their bank, if they need money, with an in-house bank they would approach corporate treasury to find out, if internal funding is possible. And only if intercompany financing is not possible, corporate treasury would approach their bank for external funding. This also helps to reduce bank and transaction fees.
Things to Consider in Your Decision
There are several different characteristics that contribute to determining if in-house banking is appropriate for your business. The size of a company is an important factor. Larger corporations tend to benefit more, seeing as they have a greater number of transactions to manage. How many counterparts the company has should also be considered. If you are only working with one main bank, you won´t be able to further consolidate your bank portfolio. Other factors, such as the nature of the business and the number of bank accounts that the company has, are also key factors.
In-house banking has several benefits, and can be useful for a number of different businesses. However, it is important that you take the time to consider all aspects before choosing this or any other approach. Be sure to do your research, but also consult with knowledgeable system providers as you will need a solid technological foundation to build your in-house bank.