As the trend towards treasury centralisation continues to take centre stage, concepts for central handling of cash and payments are more popular than ever. SEPA has of course prompted much of this trend, kicking off initiatives around optimising payments processes, investing in new technologies and building up expert teams in order for companies to take their payments management to the next level.
Leveraging expertise and modern technology to centralise payments structures helps best practice organisations to optimise interest, as well as decrease transaction and financing costs. Treasurers adapting to a centralisation strategy commonly assess and reorganise banking relationships as well, often choosing to work with fewer bank partners, but with partners who are more aligned with the business, for example by their geographic footprint.
Even in today´s turbulent economic environment, leading companies still continue to grow internationally. Such expansion brings new dynamics to financial departments and often results in opening remote treasury centres in new markets, challenging treasury professionals with new local and regional regulations and new funding opportunities, currencies and interest rate levels. In addition, trapped cash due to stamp duties or transactional taxes, thin capitalisation rules or non-convertible currencies are making it harder to gain visibility into cash and payments and to optimise the results.
However, the complexity of internationalisation can be reduced drastically by reverting to advanced payments centralisation concepts such as payment-on-behalf-of (POBO) or payment factories, which it can aid, providing sophisticated payment capabilities, usually as a vital part of integrated solutions for Treasury and Risk Management (TRM). The aim is to further reduce bank transaction costs, optimise liquidity and create global visibility.
Commonly, payment factories span the following key functionalities:
- Automate import and export of payments files in different formats including format conversion.
- Centralise all aspects of the payment initiation, approval and release workflow.
- Optimise and control enterprise-wide payments.
- Support different transfer and authorisation methods.
In order to support centralised payment strategies, payment information often provided in different formats is imported into the TRM solution or directly generated from cash flows within this all-in-one TRM platform. As part of the import, the payment files are checked for completeness and correctness, alerting treasurers if data is missing or wrong.
When all information is available, the logic of the payment factory starts working: payments to the same recipient at the same time are grouped together as one payment. Currencies can be converted. The optimal payment file format and the optimal time of execution are compiled for the individual payments – making use of low cost options like SEPA payments or domestic payments.
On the basis of the optimisation result, the TRM solution automatically generates the corresponding payment files for the payments in different formats and forwards these immediately or on a time delay to the executing financial institution. The most effective channel is chosen to execute the payments. Multi-level transfer and authorisation structures help to guarantee efficient and secure execution.
Additionally, TRM solutions can process payments for subsidiaries easily by applying the corresponding execution ‘on behalf of – this can a POBO or. More unusually, a collection-on-behalf-of (COBO). These payments are not processed via the accounts of the local business unit, but rather via the holding company´s or a treasury centre´s accounts. Thus, when the TRM solution generates the payment, a second payment is generated automatically for the same amount for the respective inter-company account.
Specifically, in combination with a netting centre, another concept for efficient handling of intercompany-payments in global organisations, payments-on-behalf-of help corporations to allocate cash where needed and optimise foreign exchange (FX) costs.
Technological improvements facilitate payments centralisation at the back end, as TRM solutions provide the treasurer with tools required to gather all financial data in a single solution and to automate payment processes. Besides visibility into global cash, operational risk can be reduced by monitoring workflows and setting up approval regulations. Additionally, automation and integrated tools for analyses and reporting free time for strategic interpretation of financial data and efficient decision making to drive the goals of the business.
Those all-in-one TRM approaches often leverage Software-as-a-Service (SaaS) technology, which facilitates shared services as enterprise-wide data and services are fully integrated and centralised. Furthermore, SaaS solutions are not only cost-efficient and easy to roll-out to global subsidiaries, but also characterised by the ease of integration and connectivity to third party providers, which are particularly important in payments management. This makes straight-through-processing (STP) to enterprise resource planning (ERP) systems, banks, market data providers, online trading platforms and payment service partners possible.
As there are numerous ways to streamline payments processes, corporations have to choose the most beneficial concept to fit their unique process and structure requirements, as well as support their specific business growth strategies. A centralised TRM system can alleviate the complexities that come with internationalisation, regulation and the continued impact of economic and market developments upon treasury. Selecting a solution that can deliver and can be easily adapted and updated to respond to new requirements is a key consideration for success.
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