In 1998 Philips treasury introduced the Philips Payment Factory (PPF). The model for the PPF had been based on a bank styled intercompany current account that could be used for initiating intercompany and external transactions on bank accounts owned by the treasury (so called payments on behalf of (POBO)). The PPF operates accounts in 25 countries and 15 different currencies.
Despite the many benefits, the PPF did not work for all subsidiaries and payment methods due to issues of a technical, fiscal or legal nature. As a consequence Philips maintained a global cash management and payment processing infrastructure, in addition to the PPF infrastructure. It was this that the electronics group wanted to remove with its Next Generation Philips Payment Factory (NGPPF) project. It worked with project partners at SAP, BBP, the Zanders consultancy, and with Citi and Bank of America Merrill Lynch (BofA Merrill) to achieve its objectives.
The NGPPF project had the following key objectives:
- Fully centralise bank communication for all countries and payment methods.
- Create an unbroken, online audit trail for payment processing.
- Minimise repair charges by banks.
- Provide full visibility on liquidity.
- Improve the flexibility in Philips’ bank connectivity (reduce switch / maintenance costs).
The NGPPF is based on SAP EEC6 and SWIFTNet for Corporates and acts as a secure hub between the local enterprise resource planning (ERP) installations and the banking community. The NGPPF adds an additional processing centre in SAP IHC for local payments next to the original PPF. The additional centre receives the intermediate document (iDOC) SAP format data from local financial systems and forwards payment files via SAP business communication manager (BCM)/SWIFT link to local bank branches as instructions on the bank account owned by the subsidiary but selected by the centre in SAP IHC.
At the centre of the new solution is a custom built, rule-based logic that determines the most efficient final payment method and validates the completeness of the instruction, which allows Philips entities to use a limited number of originating payment methods that automatically get translated in an external payment method for the most efficient way of processing. For example, payment method ‘5’ (see below) automatically gets translated into an automated clearing house (ACH), single euro payments area (SEPA), real-time gross settlement (RTGS), book, or international transaction based on defined criteria and the available static data. Next to this, the central infrastructure supports local cheque, bill, direct debit payments, but also unusual requirements such as the French lettre de credit releve (LCR) transactions.
The NGPPF already provides payment processing in some 13 additional, more complex environments, covering the Belarusian ruble (BR), Russian ruble (RU), Ukrainian hryvnia (UAH), Turkish lira (TR) and Taiwan dollars (TW), plus 13 additional currencies including the Lithuanian litai (LTL) and Bulgarian lev (BGN).
Project Execution and Timeframe
The business case for the NGPPF was approved in Q410 and the project was started at the end of Q111 with a small project management team from Philips’ treasury and SAP application support. SWIFT connectivity was technically available for testing in August 2011 and available in production by December last year. The development was prototyped and unit tested between April and August 2011.
Implementation and user acceptance testing (UAT) was done in parallel with two treasury projects during the September-December 2011 time period. The new payment infrastructure for the supplier financing project went live in January 2012 and for the spin-off company TP Vision project completion was achieved by February 2012. Since this time Philips’ has been rolling out the new infrastructure; a process which has now been completed.
The NGPPF platform comes with many fringe benefits for Philips, including the provision of:
- Visibility on all bank balances: On all accounts operated by treasury and subsidiaries the new platform receives statements once. These are integrated for auto-matching locally and cash management purposes centrally. This provides treasury with daily visibility on all Philips cash, irrespective of it being under control of treasury cash pools. From this foundation a new and more accurate cash forecasting and liquidity planning system can be built out.
- Full control over bank account infrastructure: Like most other companies, Philips has a policy that treasury has to approve the opening of any bank account. The NGPPF platform brings the enforcement of this policy to the next level because payment interfaces cannot now be implemented outside the central infrastructure.
- Full transparency on local payment processes: All incoming and outgoing transactions are now processed via the central platform. This provides an unbroken, online audit trail and detailed evidence about the use of (inefficient) payments instruments, plus ready access to bank charge information and the timing of cashflows. On outbound transactions, the platform provides control over the used payment method, allowing for cuts in the cost of transaction processing.
- Easy spin off/integration of new business: Mid-stream during the NGPPF project, Philips spun off its worldwide TV business. Philips treasury had to provide a standalone cash management and payment processing infrastructure in more than 25 countries, six banking groups, 23 different currencies and eight different payment methods, including Direct Debits (DDs) and LCRs. The NGPPF provided the infrastructure to do this efficiently and effectively within the set timeframe of five months. Integrating new business is equally efficient given the standardization on iDOC and XML interfacing.
- More accurate information on trade credit: Bank statements on operational accounts are uploaded and processed automatically. This allows for closer supervision on daily post processing of statements. This does not only reduce local financial aid cost, but also makes trade credit information more up-to-date.
The above benefits stemming from the NGPPF project at Philips have allowed the company to complete what it started back in 1998 with the PPF and laid an effective foundation for still further improvements in the future.
- This case study is based upon an entry into the gtnews Awards for Global Corporate Treasury 2012, sponsored by Bank of America Merrill Lynch (BofA Merrill). The winners of this year’s annual awards, now in its third staging, were only revealed at a gala dinner on 24 May at the Sofitel Grand Hotel in Amsterdam, the Netherlands, after the opening of the two-day gtnews Forum for Global Corporate Treasury conference. This winning Philips entry is shared here from the Shared Service/Payment Factories Project of the Year category as a payments factory best practice guideline and commentary. To see a full report on all the Awards winners and the gala dinner on 24 May please click here.
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