The world has gone digital. In February this year, Cisco’s
visual networking index for global mobile data traffic projected that by the end
of 2013 there will be more internet-connected mobile devices, such as
smartphones and tablets than people globally. Internet penetration is now an
average 34.3% worldwide, according to an Internet World Stats report from
October 2012 – a 566.4% increase since 2000. Consequently, electronic e-commerce
is booming: a recent report from Boston Consulting Group (BCG) forecasts that by
2016 the internet economy will have reached US$4.2 trillion in the G20
Companies are now looking to digital technologies to
transform their supply chains. The processes required to enable corporations to
collect from their clients and pay their suppliers can be enormously complex. As
a result, while some parts of corporates’ account payables (A/P) and receivables
(A/R) processes have moved to electronic methods over the past decade, many
remain paper-based, inefficient and expensive to process. Treasurers need to
While digitisation has been taking place for the past 10
years or more, rapidly falling data storage and hardware costs, and maturing
technologies that are scalable to meet companies’ needs are now making it easier
for corporates to leverage new technology and banking structures. As a result,
digitisation has the potential to transform both electronic and paper-based
processes by cutting costs, increasing efficiency and accelerating the continuum
of value to enhance working capital. Companies can access detailed analytics
that improve transparency around their A/P and A/R to enable informed decision
At the same time, digitisation offers simplified and direct
access to foreign currencies that can expand corporations’ reach and
opportunities. Digitisation is also changing the way that corporates sell.
Companies can leverage digital collections channels to disintermediate and
collapse the sales chain, enabling them to get closer to the end customer. Now
is the time to seize the many opportunities that digital offers.
Impact on Receivables
Collecting cash from customers requires a huge
number of processes and inter-linkages. The journey from issuing a purchase
order to collecting cash involves company departments and processes ranging from
sales, billing, finance and A/R to technology and operations. No single
department, such as the treasury, typically controls all of these stages and
consequently visibility across the chain can be poor, so integration has to be
To change A/R processes requires buy-in and consensus
from multiple parts of the business, which often have differing objectives. To
compound the challenge, any improvement in receivables requires the end customer
to be willing to change how they pay.
Given the enormous barriers to
change, receivables are usually the least technologically sophisticated part of
corporates’ supply chain. Consequently, they have received relatively little
investment to improve automation or efficiency compared with other parts of the
supply chain. As a result, A/R is often problematic for companies and requires
significant manual processing work.
While the challenges associated
with A/R are not to be underestimated, the low baseline and limited improvements
in recent years mean that the digitisation of receivables processing offers the
greatest potential for benefits. Digitisation can eliminate manual paper-based
processes, improving efficiency and lowering costs, while an added benefit is
the enhancement of a company’s environmental credentials by reducing waste.
Digitisation of A/R is now possible because digital technology – most of
which has originated in consumer markets – has matured, becoming more secure and
stable. There are now digital products spanning the full order-to-cash (OTC)
Receivables are inevitably more efficient if they begin as a
digital process. By enabling access to digital A/R channels for their end
customers, companies can kick-start a dramatic change in their receivables
handling. For example, a mobile cheque deposit product, which takes a photo of a
cheque when it is received and begins processing immediately, is invaluable for
travelling salesmen. This product is now available in markets where cheque
truncation laws are already in place, such as the US, and is being deployed in
Similarly, mobile receivables solutions that use
payment by a cellphone as a cash alternative make it easier for suppliers to
collect from neighborhood stores. Uptake has been rapid in emerging markets that
have high cash usage. Meanwhile, electronic commerce (e-commerce) solutions can
allow companies to expand and improve their internet sales by offering
collections in local currencies, rather than hard currencies, potentially
opening up new markets. This is particularly advantageous for companies that
sell digital goods such as software and music, as it gives new consumers access
to their products at little additional cost.
Other solutions such as
electronic billing and invoicing (e-billing and e-invoicing) are still at a more
nascent stage of their development but offer the potential to digitise the
entire A/R process. Such tools also enable easier use of matching and
reconciliation technologies; for example virtual accounts, which allow a
company’s end customers to pay to a local virtual account number. Funds are
ultimately collected in a centralised operating account with a unique
identifier, enabling easier automatic reconciliation.
The Impact on
Many corporate payment processes are technologically
sophisticated compared with A/R. Moreover, many of the benefits that digital
delivers for receivables are also benefits for payments processing, given that
companies both make and receive payments.
However, digital can
deliver some unique improvements for payments. For example, cheap and almost
unlimited data storage and processing capabilities allow companies to capture,
store and perform complex analysis on the huge volumes of payments data they
generate. As a result, transparency can be improved and decision-making can
become a better-informed process. For a decentralised treasury, such analytics
offer a way to ensure visibility of cash across the business, understand what
returns are earned, and highlight ways to improve them.
be used to enable companies to optimise A/P, by constantly analysing payment
patterns and requirements and matching them with the lowest cost-suitable
payment options. Payments analytics with drill-down dashboards can improve
efficiency and control in organisations with disparate treasury operations. This
value-added solution is now available in select markets in Asia and is being
deployed in other countries.
Leveraging digital technology for A/P
can drive tangible economic results. Working capital can be optimised by
analysing and tightly managing days payable outstanding (DPO) and supplier
payment terms. Digitisation reduces reliance on manual processes and therefore
the margin allowed for errors. As a result, it enables resources to be
re-deployed to higher margin activities.
Data analytics also has an
important role to play in meeting ever more stringent compliance requirements
and managing risk effectively. For example, while digitisation of the financial
environment is creating myriad benefits, it also makes large-scale fraud easier.
Fortunately, analytics combined with robust and thorough surveillance software
can be put to work to locate intra-company fraud wherever it may occur.
The increasing use of mobile technology in the treasury for initiating and
authorising payments improves convenience and enables active management of A/P
without being tied to a physical office. It is becoming a must-have for
companies with operations outside of their headquarters. In developed markets,
the ability to authorise payments via mobile phone increases productivity. In
emerging markets, such solutions allow companies to use technology that may be
inaccessible on fixed line broadband due to poor telecom infrastructure.
Corporates with foreign exchange (FX) needs are also benefitting from
payments digitisation. Digital FX and cross-currency solutions offer companies
the ability to make payments in over 130 currencies, without needing an account
in that currency. In some emerging markets, corporates can access active FX
rates electronically when payment takes place. For more developed markets,
passive bench rates enable cross-currency payments and hedging. Digital channels
offer important advantages for companies that operate globally but which, for
reasons of scale, cannot be on the ground in every country where they do
business. As a result, the marketplace can become truly borderless.
Different Impacts for Different Markets
Digital has something to
offer almost every company in every location. However, internet penetration and
the use of digital devices vary significantly around the world. According to
Internet World Stats at the end of June 2012 just 15.6% of Africans were online
compared with 78.6% of North Americans.
Moreover, the different
characteristics of emerging and developed markets can mean that different
technologies are deployed in different ways. For example, in developing markets
technology is often deployed to enable financial inclusion, reduce costs, and
change the way that consumers and businesses make payments in countries without
a well-developed banking sector. The best known such example is M-Pesa, which
was initially developed for use in Kenya. It allows users to transfer money via
a mobile device without needing a bank account. Similar solutions are now
available in many other emerging markets, such as China, India and Thailand.
For corporates in developed countries, the focus of new technologies,
such as peer-to-peer (P2P) payments and near field communications (NFC) or ‘tap
and go’ technology, is necessarily different. Often many of the benefits of
digital for developed market companies are tied to macro trends. Given a weak
outlook for growth, the importance of improving efficiency, maintaining
visibility and control, and lowering costs has been reinforced. Digitisation
offers a clear, proven way to achieve such objectives.
also be an enabler for both developed and emerging markets companies to grow
outside their home market. It offers a way to sell products and services more
broadly without costly expansion overseas. Similarly, cross-currency payment
capabilities can simplify FX for fast-growing companies and allow them to
transact in countries that would be otherwise hard to reach. Smartphones and
tablets enable access to treasury technology that would be otherwise unavailable
and allow emerging market companies to leapfrog developed market competitors.
Digital’s Time has Arrived
Just a few years ago, many of the
technology trends that are now revolutionising the treasury were untested and
far from secure and stable enough to use in a corporate environment. However,
the adoption of new technologies follows a predictable path: consumers tend to
be the earliest users, followed by small businesses – as seen in the adoption of
Square, which turns mobile devices into a credit card point of sale (PoS) system
– and then larger firms. Use of new technologies by larger firms lags consumers
and smaller companies as they need more scalable, reliable platforms. Many of
these technologies have now reached critical scale and sophistication and can
therefore now be deployed to meet the more complex A/P and A/R needs of
To maximize the opportunities available from
digital, it is crucial that companies look beyond the introduction of a single
technology or process. Corporates must adopt a new mindset and re-engineer their
workflows to accommodate digital. For some organisations, such a radical change
could prove challenging. To get the support they need – and to achieve their
goals – companies need to work with a partner that understands their business
model and has a proven track record of introducing innovative technology
successfully. While there has been a proliferation of technologies in recent
years, providers typically offer individual services and are unable to integrate
such services with other offerings or companies’ broader treasury operations. By
choosing the right partner, corporations can ensure they are ready to seize the
opportunities that digital offers.
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