How in-house bank accounts are usually set up in finance and ERP systems

In most ERP landscapes the in-house bank sits in the treasury or cash management module of the parent's system. Each subsidiary holds an internal account there, mirrored by intercompany ledger accounts on both sides. Real bank accounts are concentrated at the centre, and the in-house bank records who owns what.

Where the in-house bank lives

The usual design puts the in-house bank inside a central treasury entity, often a dedicated legal company with its own ledger. Subsidiaries keep their own company codes, sometimes on the same ERP instance and sometimes on separate ones. When they sit on different systems, the link runs through payment files, bank statement formats or an integration layer that imitates a bank.

That imitation matters. A well built setup lets a subsidiary treat the in-house bank exactly like an external bank. It sends payment instructions, receives statements and reconciles them in its normal way. The subsidiary's accountants often never see the treasury module at all.

Account structure and master data

Each subsidiary gets one or more internal accounts, usually per currency. These carry their own master data: account holder, currency, interest conditions, credit or overdraft limits, and the ledger accounts they map to.

On the treasury side, every internal account points to a liability or receivable account in the central ledger. On the subsidiary side, the internal account behaves like a bank account in the chart of accounts, with its own clearing account for items in transit. Getting these classifications right at setup saves a great deal of reconciliation pain later. Intercompany partner codes need to be populated consistently, or eliminations at consolidation will not match.

Paying and collecting on behalf of subsidiaries

For outgoing payments, the common pattern is a payment factory. Subsidiaries run their payables as usual, but the payment file goes to the in-house bank. Treasury debits the internal account, then pays the supplier from a central external account. Some groups go further and pay in the name of the subsidiary, so the supplier sees the right payer even though the cash left a central account.

Incoming payments work the other way. Customers pay into central collection accounts. Treasury identifies the beneficiary subsidiary, credits its internal account and passes on the remittance detail so the subsidiary can clear its open invoices. Unidentified receipts are the weak point here. They need an owner, a holding account and a routine for chasing them down, otherwise they sit in suspense far longer than anyone intends. Returned items, such as bounced cheques or reversed direct debits, need the same care because the reversal has to flow back to the right subsidiary.

Internal transfers, netting and loans

Once every entity holds an internal account, settling intercompany invoices becomes a book entry. One subsidiary is debited and another credited, with no external cash movement. Netting cycles take this further by offsetting payables against receivables across the group and settling only the residual balances.

Intercompany loans are often managed as separate internal accounts or as loan contracts in the treasury module. Keeping them apart from operational balances makes interest and transfer pricing easier to defend.

Interest, fees and statements

Interest is calculated on internal account balances using conditions held in master data. Credit and debit rates usually differ, and many groups add a margin or a reference rate. Fees for payments processed, accounts held or currency conversion may be charged as well, though some groups prefer to keep the internal bank free of charges to encourage use.

Statements go out in a standard electronic format so subsidiaries can import them automatically. When statements arrive late or in an odd layout, subsidiaries start keeping side spreadsheets, and the in-house bank loses its credibility as the record of truth.

Reaching the general ledger and the close

Treasury postings flow to the central ledger, either line by line or in summarised form from the treasury subledger. Subsidiaries post from the statements they import. Manual journals should be rare and approved, since each one breaks the symmetry between the two sides.

At period end, interest and fees are posted, internal balances are reconciled against the mirrored intercompany accounts, and the period is closed in a set order so the subsidiaries are not still posting after treasury has locked its books.

Questions to ask the people who run it

• Which payments still leave a subsidiary's own external bank account, and what is the reason given for each exception?
• How are unidentified incoming receipts handled today, and who decides which subsidiary they belong to?
• Do subsidiaries import statements automatically, or does someone rekey or adjust them?
• When the two sides of an internal account disagree at period end, who fixes it and where is the correction posted?
• Are interest conditions maintained in the system, or calculated outside and booked by journal?
• Has any subsidiary been allowed an overdraft limit that was never formally approved?
• What happens to a payment rejected by the external bank after the internal account was already debited?
• Which reports does treasury actually use for daily cash positioning, and do they come from the in-house bank or from somewhere else?

Where setups tend to drift

The documented design and the lived one usually part ways at the edges. Local entities keep a dormant external account "just in case" and quietly start using it. Netting cutoffs slip. Interest is waived for a struggling unit by a manual reversal nobody records as policy. None of these breaks the system outright, but together they erode the central view of cash that justified the in-house bank in the first place.

APQC's Process Classification Framework® (PCF) is an open standard developed by APQC, a nonprofit that promotes benchmarking and best practices worldwide. To download the full PCF or to view definitions and measures, please visit www.apqc.org/pcf.