Cash & Liquidity ManagementCash ManagementAccounts PayableThe benefits and challenges of POBO and COBO

The benefits and challenges of POBO and COBO

Increasing international standardisation of payment formats has paved the way for more centralised processes and incentivised companies to set up payment and collection factories. Payments-on-behalf (POBO) and collections-on-behalf (COBO) are the ultimate goal of every ambitious payment and collection factory project.

Increasing international standardisation of payment formats has paved the way for more centralised processes and incentivised companies to set up payment and collection factories. Payments-on-behalf (POBO) and collections-on-behalf (COBO) are the goal of every ambitious payment and collection factory project, enabling consolidation of banking partners, high levels of transparency and maximum efficiency for financial processes. But what are the challenges, what represents best practice and how should treasury go about implementation?

The rise of common global implementation (CGI) as the international standard format for payments, actively supported by banks worldwide, has opened up new possibilities for companies to streamline their accounts payable and receivable (AP/AR) processes.

Once companies had, for example, to apply 10 different formats to connect 10 countries to their payment system, they now do so by applying one standard payment format – CGI. That said, although CGI is an internationally-recognised standard today, it does have varying individual characteristics. Nevertheless, payments and collections standardisation made possible by initiatives such as CGI worldwide and Europe’s single euro payments area (SEPA) has spurred the establishment of payment and collection factories worldwide.

When implementing POBO/COBO, questions that companies typically ask include:
• When does it make sense to set up a payment/collection factory and POBO/COBO?
• What are the greatest benefits?
• What are the challenges?
• Is a shared service centre (SSC) needed?
• How to go about implementation?

Let’s consider each of these:

When does it make sense to set up a payment/collection factory and POBO/COBO?

For POBO and COBO to deliver significant efficiency gains and a measurable return on investment (RoI), it is usually companies with subsidiaries in more than 10 countries and with a substantial annual turnover that implement centralised payment and collections hubs. Implementation projects are complex, requiring involvement by dedicated implementation teams both from the company and the bank, so significant resources and endurance are vital to bring the project to successful completion and reap the benefits.

What are the greatest benefits?

Experience suggests the most important benefits of a POBO/COBO scheme are:
• Maximum transparency: A central and real-time overview enables management at head office to track company-wide cash flows and ensure compliance.
• Reduced fraud risk: Knowing exactly where the cash is flowing helps detect and combat fraud.
• Better control of local subsidiaries: Payment/collection factories are ideal for integrating local processes and making them more visible. Monitoring local payments and providing direct feedback to local entities is an advantage of centralised and standardised processes.
• More cost-efficient payment including optimisation of payments based on value dates: With a POBO approach, companies can bundle payments according to their individual criteria and automatically select the most cost-efficient payment method and banking connection.

What are the challenges?

Inevitably with such complex projects, several challenges must be considered.


Payments-on-behalf is possible for many – but not all – payment types. Tax payments, for example, must be made locally. In some countries payments-on-behalf are prohibited by law; in others such as Japan, they are highly complicated due to legal tax restrictions, so one must assess whether implementing POBO is worth the effort.

Secondly, some countries’ regulations prohibit CGI formats, while some banks still do not yet support the international format.

Apart from regulatory challenges, companies should review their internal processes. POBO and COBO support an automated cash management process, so they should not forget to integrate local payments into their cash management projection of local need for cash. It is also important to ensure that all internal receivables are correctly accounted for in the balance sheet.

The hours of operation impact on the process efficiency of payment/collection factories when they are established across continents. For example, a company has set up a payment/collection factory at its Europe head office but has subsidiaries worldwide. In that case bank statements from, say, Asia are typically available at midnight so that any (automated) cash management payments, which actually need the balances based on the actual account statement, could be initiated immediately once the bank statements are automatically processed. However, the time difference means head office employees will only start work at 7 am or later, leading to a loss of time in the processing steps.

Technology can here be used to implement global processes but with local execution. With global solutions visibility, transparency, control and management business intelligence information are all possible.


COBO presents further challenges. In order to retrieve all kinds of AR information, such as bank statements, lockbox, cheque payments or remittance advices worldwide and obtain a central overview of account balances and account activity, the statements, lockbox and other data are not only collected via the master banks of the payment factory, but usually also from local banks or AR banks, as there are no standardised formats for receivables information yet like the CGI for payments. There are four main options for circumventing this challenge:

Companies may
• Ask their master banks to collect the local bank statements lockbox and other cash management information from the AR banks. They will route all statements to the company’s collection factory. That means, however, that their master banks know all about company-wide ARs; moreover, they charge sizeable fees for this service.
• Use a Swift service bureau. Technically, only one connection is required, but the administrative component including contracts with the individual banks remains with the company.
• Set up their own Swift connections, so that all banks send their statements directly to the collection factory.
• Use specialised technology to automatically process all kinds of AR data including remittance advices that can be sent in all kinds of formats (electronic, pdf, email, paper etc.)

However, not all banks offer Swift connectivity. Individual local requirements and capabilities often result in companies using a hybrid of approaches.

For standardisation purposes, collection factories mainly use the common MT940 or camt formats for AR reconciliation. Although these formats provide considerable detail on individual items, they lack the depths that some banks provide via highly individualised reporting. These could not be mirrored in the usual and standardised set-up of a collection factory. For example, a bank in one country may deliver details, such as the number of articles or even components.

Despite the challenges, collection factories and COBO are great for providing a central, reliable overview in real time of company-wide AR. Management benefits from enhanced transparency and an exact knowledge of their local entities.

Is an SSC needed?

This is an often-asked question. The answer is fairly straightforward: an SSC landscape is not a perquisite for a payment factory, but is recommended. As mentioned earlier, payment factories across different continents face gaps in their operations due to different time zones and regional operating hours. To reap full benefit from a payment factory companies would need 24/7/365 operations. The easiest solution is to implement regional SSCs so that processes are uninterrupted. In many cases, companies run SSCs for AP/AR processes, one in each region, to support their payment and collection factory set-up.

How to go about implementation?

Successful projects require full support and buy-in from management as well as dedicated process owners to drive the project.

Prior to setting up a payment/collection factory a company should consolidate the number of banks they work with and cooperate closely with them. The aim of centralising payments and collections processes is to streamline them, with consolidation an essential component. Often, payment/collection factories use no more than five to 10 banks as master banks, depending on corporate structure. Companies thus need to individually evaluate the optimal number for achieving efficiency gains while preserving sufficient diversity: you don’t want all the eggs in one basket.

The benefit of consolidation at the outset is that less testing is required during the project, as banks are usually fairly strict about POBO and only release such payments once sufficient testing is done. As testing must be carried out for each country, payment type and bank connection one can easily imagine the work involved. So, the fewer bank connections the faster the testing.

Involving tax and legal experts with international focus is paramount for ensuring processes comply with local requirements and robust contracts with banking partners. Financial experts can help with cost-benefit analyses for each country to be included in the payment/collection factory,

The technical component needs must also be looked at, as the IT infrastructure required for a payment/collection factory is probably more comprehensive than that already established in the company. Thus, it is essential to assess the status quo and fill any gaps through additional technology.

Payment/collection factory projects are usually complex so it is important to plan sufficient time for completion, define clear milestones, measurable tasks and project responsibilities to ensure successful completion on time and to budget.


Various challenges must be overcome, but the reward is huge: POBO/COBO is an ideal means for providing management with enhanced control and transparency. Payment and collection factories enable company-wide standardisation and positively impact on process efficiency.

What companies particularly value about POBO/COBO – besides greater process efficiency – is improved transparency and control over company-wide cash flows. Moreover, cost reductions achieved by minimising the number of bank connects and international cash transfers as well as using domestic payments instead of foreign payments has been cited by customers as a key benefit of centralised payment and collection hubs. The extent to which companies can reduce costs naturally depends on the scope of their POBO/COBO projects, the countries they operate in, IT landscapes, workflows, bank partners and various other factors.

Due to countries’ different legal, technical or process requirements, banks and companies hybrid set-ups of payment/collection factories are most common. Evaluating all aspects, including legal and tax restrictions, internal processes, banking connections, technical capacity et al is a perquisite for a set- up that best suits the company’s needs.

Most often, POBO/COBO projects are implemented in phases starting with one region so that benefit is given before rolling it out to other regions. Establishing a POBO/COBO set-up is a far from simple project and typically takes months, or even years to complete – depending on the number of countries, currencies, legal and technical requirements et al.

Thorough planning, management buy-in and dedicated teams are thus essential for a successful project.

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