Boosting Visibility and Control with Centralised Payment Factories

While the concept of payment factories is nothing new,
the march towards single euro payments area (SEPA) compliance has placed a
renewed focus on payment centralisation, due to the harmonisation of formats and
connectivity that SEPA offers. This standardisation makes it easier to establish
payment factories and, once implemented, to improve the efficiency of payment
workflows.

Setting up payment factories is a team effort, as
multiple departments typically own different parts of the payment process; for
example treasury owns bank relationships; procurement or credit may own the
customer or supplier relationships etc. The migration effort to comply with SEPA
also requires collaboration among these same teams, so if they didn’t work
together to centralise payments before, they are likely to do so now.

Whether a payment factory was already in place or is a new initiative for
these cross-departmental teams, corporate treasurers have an opportunity to
benefit from reduced costs, increased cash visibility and improved control over
payment timing and terms.

Benefits of a Payment Factory

Most organisations implement payment factories to reduce costs. By eliminating
redundancies and consolidating disparate processes, they save money. Optimising
payment timing and the choice of payment methods minimises costs and money can
also be saved by centralising bank services, when the opportunity arises. These
direct benefits are obvious and among the first to be taken advantage of by the
business.

Most finance professionals will also appreciate the
benefits arising from improved visibility and control. Payment centralisation
offers better management of the payment process. Ensuring the right people are
approving payments helps to improve timing and control. If the business lacks
control over payment release, then the possibility for surprises increases – and
these generally lead to bad tempers and poor consequences.

With
payment centralisation, visibility into all payments increases. Treasury will
know the exact timing and the amounts of outgoing payments and, especially with
direct debit, incoming amounts too. In addition, visibility into payments allows
for better cash planning, improving liquidity risk management.

Perhaps more importantly, chief financial officers (CFOs) and treasurers gain
analysis and insight through improved visibility and control of payments.
Payment factories also create the opportunity for more strategic decision
making.

For example, armed with better transparency and control, the
organisation has the opportunity to standardise payment terms. Ideally,
visibility of invoices will also have been centralised when creating the payment
factory, meaning that payment identification and processing times decrease.
Combined with the opportunity to standardise terms, this puts the finance team
in a great position to find ways to improve working capital.

Supply
chain finance (SCF) is one such way, where the treasurer can extend days payable
outstanding (DPO) without putting financial stress on the supply chain. On the
flipside, cash-rich organisations may choose to offer early payments using their
own excess cash and liquidity, taking the opportunity to earn higher cash
returns.

Whether the objective is to improve working capital by
extending DPO or proactively implementing a programme to offer attractive early
payment discounts directly, there is significant business value to be created by
having the centralised visibility and standardisation of process that results
from implementing payment factories.

Requirements for Implementing a
Payment Factory

A checklist of requirements for implementing a
payment factory should, as a minimum, include the following:

  • Centralisation of payment connectivity (to the banks) and payment formats.
    In the European Union (EU), this means simply meeting SEPA requirements.
  • Centralising processes such as approvals and payment limits is also
    necessary, to ensure the complete payment workflow is controlled and meets
    internal policy compliance.
  • Data consolidation: payment requests must be
    consolidated into a single database so that all users – many of whom may be
    remote – can input requests for approval and, ultimately, the transmission of
    approved payments to the bank(s).

Technology is a key enabler.
Treasury systems and enterprise resource planning (ERP) have to be
interconnected, as both systems play a role in the centralisation of invoices
and payment requests. Often the treasury management system will be the
consolidation point, managing the payment approvals and operational workflow and
responsible for connectivity to the banks, either directly or via SWIFT. As the
volume of payments is generally very high – a monthly total of 100,000 payments
is typical – operational efficiency is absolutely critical. Systems must be
integrated and workflow automation is a must.

No matter the extent of
the payment factory and degree of centralisation, every treasurer and chief
financial officer (CFO) stands to gain from reduced costs, increased visibility
and improved control over payment workflows. SEPA’s focus on both credit
transfers (SCTs) and direct debits (SDDs) also acts as a catalyst to combine
incoming payment collections into this centralised model, improving the benefits
to the organisation. As a shared objective across multiple teams, implementation
of a payment factory can serve as a fine example of collaboration and
co-operation that could extend to other internal, value-add projects.

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