What is the function of Pay on behalf of (POBO) in a liquidity management structure?

The correct choice highlights the primary function of Pay on Behalf of (POBO) within liquidity management structures. POBO allows one entity—typically a parent company or centralized treasury function—to authorize another entity, such as a subsidiary, to make payments on its behalf. This facilitates efficient cash management by centralizing control over payments, improving liquidity as funds can be managed more effectively across the organization.

In this scenario, the designated entity (the one making payments) does not need to hold sufficient funds to cover those payments independently; instead, the funds can be drawn from a centralized pool managed by the parent company. This arrangement enhances visibility of cash flows and can reduce transaction costs associated with intercompany payments.

The other potential choices do not accurately reflect the core function of POBO. While enabling direct payments to subsidiaries and creating physical accounts are vital aspects of liquidity management, they do not encapsulate the essential role POBO plays. Additionally, the notion that POBO eliminates the need for interest calculations overlooks the fact that, while POBO can streamline financial processes, interest calculations may still apply depending on the broader financial structure and agreements in place.