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#4 Having No Insight into the Variety of Products Available for your Company (Dutch item)
05-08-2021 | XE |
Many companies are not aware of the total range of possibilities for the management of Currency Risks. For example, they only buy the necessary currency at the current rate, spot rate, and think any other strategy currency speculation. Hedging in particular is often misunderstood and therefore rejected. currency hedging is not gambling how the currency markets might behave in the coming days and weeks development, but is intended to insure the company against the possibility of unfavorable developments.
“Valutahedging is niet gokken hoe de valutamarkten zich de komende dagen en weken zouden kunnen ontwikkelen, maar is bedoeld om het bedrijf te verzekeren tegen de mogelijkheid van ongunstige ontwikkelingen.”
Er zijn diverse valutahulpmiddelen die u kunt gebruiken om dat te doen, maar laten we termijncontracten eens als voorbeeld nemen. Met deze transacties spreekt u af om in de toekomst een bepaalde hoeveelheid valuta tegen een vaste prijs te kopen. Neem bijvoorbeeld een supermarktketen die over een maand €10.000 moet betalen aan buitenlandse leveranciers. Een termijncontract dat vandaag specificeert hoeveel pond de keten voor die €10.000 zal betalen, elimineert het risico dat het pond de komende weken in waarde daalt waardoor de supermarktketen meer zou moet betalen dan verwacht. Dat is geen valutaspeculatie of gokken hoe de markten zich gaan ontwikkelen, het is
een verzekeringspolis.
Achteraf kan natuurlijk blijken dat hedging niet nodig was geweest. Als in ons voorbeeld het pond niet daalt ten opzichte van de euro of misschien zelfs stijgt, kan de supermarktketen denken dat het onverstandig was om van tevoren een koers vast te leggen. Maar dan zouden ze hedging beschouwen als speculatie en niet als een verzekeringspolis. Zo heeft u er aan het eind van het jaar ook geen spijt van dat u een opstalverzekering hebt betaald terwijl uw huis niet is afgebrand. Dat wil niet zeggen dat hedging de juiste strategie is voor alle bedrijven. Sommige zullen van mening zijn dat hun valutarisico niet zo groot is dat het dit soort verzekering nodig heeft. Maar dan nog moet u er niet vanuit gaan dat uw valutaprovider niet meer kan doen om uw bedrijf te helpen met uw valutabehoeften.
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Are You Still Thinking About Virtual Accounts or Already Implementing POBO and COBO?
| 04-08-2021 | treasuryXL | Nomentia |
Companies are increasingly focusing on harmonising their banking landscape to obtain better visibility of Cash balances, to mitigate Fraud Risks and to improve automation and security in their treasury processes.
In a world where the next fraud attempt is lurking around every corner, no company wants to create processes with different banks, tokens, and user lists for each of their different local entities. With this harmonisation, companies start to rethink their processes, and this naturally leads to in-house banking, including POBO and COBO. This is because the question soon arises as to why, for example, not all euro payments should be handled from one account, if that were possible within the regulatory context.
Setting up an in-house bank doesn’t happen overnight. It’s the result of several steps taken to centralise an organisation’s cash management. The six steps are:
Today we would like to focus on POBO and COBO. They are the ultimate goals of a payments project because they create transparency and make cash management processes more efficient and automated. This sounds great, right? So why, then, aren’t all organisations just setting up POBO and COBO and calling it a day?
Moving from disparate processes, tools and a varied (if you want to be positive) banking landscape to a centralised treasury doesn’t happen easily. Companies might even feel hesitant about implementing on-behalf-of structures because their set-ups are too complicated. That’s an interesting point and I’d like to stress that the more complex a company is in its cash management or enterprise resource planning (ERP) structures, the more they will benefit from an on-behalf-of set-up.
Increased control, transparency, and efficiency
In the POBO model, the subsidiaries process the payment data in their systems according to internally harmonised processes, and the group treasury decides on the most cost-efficient payment method and banking connection. The group treasury is able to centralise cash outflows, which significantly enhances the safety of and control over the payment process.
COBO and POBO make it possible for the group to reach the highest level of independence from banks and maximise cost efficiency.
The benefits of POBO and COBO can be summarised into increased control, transparency, and efficiency. But there are also challenges associated with on-behalf-of structures that need to be evaluated before setting them up.
Where there’s a benefit there’s a challenge
POBO is possible for most payment types, but some are regulated in such a way that they cannot be completed by the on-behalf-of method. This is often related to tax or salary payments. Legal restrictions specific to each country can make it difficult to set up POBO and companies need to assess whether the benefits they will gain are worth the effort. There is no one true answer for all companies; it really depends on the level of complexity they are facing.
Another reason why companies might feel hesitant about implementing POBO is because they use multiple ERP systems. If that is the case, the mere idea of POBO is simply far too complicated. To be honest, when we hear that ‘excuse’ we see it as a challenge, and it makes us happy. Because this then means we can talk about payment factories –especially our payment factory solution. We can create a process that makes it possible for all entities to pay with internal bank accounts as payments-on-behalf-of. I’d even go so far as to say that the more ERP systems a company has, the more benefits it will get from POBO.
When it comes to COBO, the main challenge is that companies are dependent on their buyers to know what to collect from whom. Companies need to retrieve all accounts receivable (AR) information and maintain an overall view of account balances. In some countries that might be relatively easy, as invoices generally have a reference number. But that’s not the case in all countries. It comes back to identifying incoming payments correctly. For example, this can be achieved by matching payments to open invoices. A solution for automatic bank account reconciliation would be able to automatically match incoming payments based on information provided, for example in the message to the right AR account. We took a closer look at the topic in this blog post about how an in-house bank with modern matching solves the COBO challenge.
That said, of course, it’s not an easy task to create on-behalf-of structures, but it’s something that organisations will greatly benefit from if done correctly.
Cloudiness in Libor Transition?
03-08-2021 | treasuryXL | Kyriba | Bob Stark
With less than 6 months to go until the transition from Libor to new overnight risk-free rates, uncertainty lingers as to which rate indices are to be adopted in countries such as the United States.
While regulators remain steadfast in their recommendations that risk free rates such as SOFR in the United States and SONIA in the United Kingdom should be the only choice to replace LIBOR, credit-sensitive rates (CSR) including Bloomberg’s proposed BSBY index remain in the conversation for some market participants and influencers. There are several examples of banks offering new contracts based on the BSBY and other CSRs instead of SONIA, in fact.
Proponents of credit-sensitive rates such as Bloomberg’s BSBY, AMX’s Ameribor, and HIS Markit’s CRITS suggest that adopting risk free rates such as Sonia does not solve the underlying transparency issues that plagued Libor in the first place. Bloomberg market experts, such as Umesh Gajria, Global Head of Linked Products, have been referenced arguing that robustness of the highly liquid market instruments supporting their calculated index make BSBY, amongst other proposed indices, resilient to manipulation. Regulators in the UK and US do not agree, stating that the market only needs one replacement for Libor and that replacement must be free of risk and market influence.
Time is running out
Whether SOFR prevails or whether a mix of Libor replacement options remain available to corporate CFOs, with less than 6 months remaining until Libor is discontinued, this rate uncertainty is one of the contributing factors explaining why corporates have yet to transition most of their USD contracts away from Libor. While certain Libor USD tenors will continue to be published into 2023, no new contracts in the United States can be based on Libor effective January 1, 2022. Corporate CFOs are running out of time for a solution to move away from Libor.
Treasury systems support all outcomes
Despite the challenges that corporate treasury teams will continue to experience as they sort out which rates should be used in collaboration with their banks and counterparties, FinTech firms including treasury management systems are prepared for any outcome.
Kyriba offers complete Libor transition support within its cloud solution, including backward-looking compounding calculations, amortizations, and online availability for in-advance and in-arrears risk-free and credit-sensitive rates.
If you have questions or concerns, please reach your dedicated Kyriba representative to setup a consultation with our market teams.