Today’s economic climate has increased the appetite for liquidity in many companies. As a result there is pressure on treasurers to better manage liquidity and payments. An increased focus on internal cash generation offers one of the main engines for cheap funding, while treasurers are also under pressure to drive down internal operational costs and expenses while increasing efficiency. Furthermore, there is increased pressure from regulators, and standardisation initiatives such as the single euro payments area (SEPA) serve as additional triggers for a consolidation of internal payment processes, account structure and IT payment infrastructure.
Managing payments and other bank transactions is very often a risky, costly, and frustrating experience for treasurers. The frustration results from a technical anomaly in the market for payments; banks in most countries require firms to deliver electronic payment (e-payment) orders in a bank-specific local file format, and this payment order must also be sent using a bank-specific tool. As a result standardisation of payment formats, payment channels, technical payment infrastructure, and the payment process within the cash management market is low. Even SEPA provides little help, as bank and country specifics will still remain after its launch. This makes payment and other bank transaction processes for corporations complex and expensive. Most firms do have heterogeneous or tailor-made payment execution processes, using different banking tools running on decentralised payment IT landscapes. Various payment channels and formats create a complex and expensive technical payment infrastructure for corporations. Risk and compliance management in payment execution is extremely difficult and costs are high.
Some of those problems can be solved by establishing an in-house bank (IHB) to settle payment streams internally, instead of paying via external banks. There are cost savings because there is lower payment traffic going through the external banking channels and, consequently, corporates pay lower fees to banks. In addition, corporations benefit from higher interest earned by avoiding float and foreign exchange (FX) fees. In order to reduce the number of external bank payments, inter- company payments need to be settled group internally. This process is technically supported by several standard solutions in the market, which filter group internal payments to subsidiaries out of the standard payment process and settle them internally. The paying subsidiary will then instruct the IHB to debit its group internal virtual bank account and to credit the virtual bank account of the receiving subsidiary.
However, establishing an IHB is just the beginning. Many corporations replace multi-bank proprietary payment tools with standardised connectivity across all banks to increase visibility and control, automate external payment processes and increase payment security. Central, multi-bank capable and enterprise resource planning (ERP)-integrated analysis and payment transaction platforms can deliver quick time to value, if they make payment processes and their analysis more effective and safe.
There are solutions in the market which can be used worldwide with various banks, allowing audit-proof monitoring and tracking of payments, as well as workflow-based authorisation and automatic receiving of bank account statements. On top of that some of these solutions allow a real-time and versatile data analysis of all aspects of the enterprises’ cash position and cashflow. Software-as-a-service (SaaS) treasury solutions can quickly remove the burden of system operation for corporate treasurers and reduce up-front investments. Corporations will be able to harvest the fruits of standardisation and automation while using those new solutions.
Treasuries should be centralised but also extend "strategic autonomy" to decentralised units because they need to be responsive and close to the customer, argues Richard Scase, author and business forecaster on global megatrends.
The benefits of an in-house bank are increasingly evident, but some treasury departments still hesitate to take the plunge. This article offers a step-by-step guide.
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