Payments and Collection Factory: Realising Cost Benefits

Over the past few years, a growing number of international
organisations have begun to explore opportunities for consolidating diverse
accounting functions globally into a single, centralised payments factory.
Operating in-house or via a third party bureau, the model typically handles a
raft of payment instruments, using the SWIFT network to make both wire and bulk
domestic and international payments.

This consolidated approach
provides the chance to reduce costs, improve the speed with which invoices are
issued, gain visibility over cash and enable payments to be more effectively
timed across the organisation to improve working capital optimisation.

However, to date, few organisations have effectively extended this approach to
include collections. Many, to be fair, have been deterred by the lack of viable
business to business direct debit (DD) options. However, with banks in Europe
having to adopt to the single euro payments area (SEPA) by 1 February 2014, and
the arrival of the SEPA business to business direct debit (B2B SDD) scheme, the
collections landscape for businesses will be fundamentally transformed. With a
single solution that can streamline not only European payments and collections
via SEPA DDs but also domestic DDs via Bankers’ Automated Clearing Services
(Bacs) and international payments – including cheques if required –
organisations can add collections predictability to the value of the centralised

Slow Adoption

Yet as recent
surveys have revealed, far too few companies have a handle on SEPA. According
most recent SEPA readiness survey

, with less than a year to go, 55% of
organisations are at risk of missing the 1 February 2014 deadline. Among the
problems is the fact that in the UK, which is outside the eurozone, many
businesses wrongly assume there is no need to comply until October 2016. In
fact, any company with a European subsidiary, European eurozone bank account(s)
or collecting DDs in the euro zone has to comply by February 2014. Failure to
comply will result in failed payments and collections; no warning and no

Another problem is the UK’s attitude to SEPA. Far too
many companies with operations in Europe have the attitude that SEPA is just
one more compliance requirement. This completely misses the significant
opportunity SEPA offers to transform the way business payments are made;
critically the introduction of a highly usable business to business DD

Without the restrictions of the different indemnity
rules carried by the national DD schemes, SEPA DD is far more business
friendly; with the limits in terms of indemnity and refund providing businesses
with essential financial safeguards. In addition, SEPA DD provides the payment
and collection predictability that is increasingly key to improving cash flow
and enabling working capital optimisation.

Adding the ability to
handle the entire DD lifecycle to the payments and collections factory – from
creating the DD mandate, through documentation, calendar, customer
correspondence, and rejects – will enable organisations to realise significant
additional cost benefits.

Realising the Vision

There are a number of fundamental building blocks for creating a
payments and collections factory. One of the first steps is to identify all
corporate bank accounts across the globe, a process that more often than not
provides new cash visibility and delivers an early win for the project.
Replacing multiple, diverse accounts payable (AP) operations, that are
typically spreadsheet-based, with a single source of information enables the
business to be far more efficient in terms of moving money, reducing overdrafts
and exploiting working capital.

It is also essential to put in place
secure and reliable connectivity to multiple banking partners. While treasurers
are increasingly looking to diversify banking relationships to minimise
counterparty risk, implementing multiple connections to support those
relationships undermines the cost benefits of the payments and collections
factory. Using the SWIFT network to provide a single, secure connection to all
banks streamlines the process whilst delivering full transaction guarantees
through tracking, time stamping and confirmation messages. 

It is,
however, important to note that organisations do not need to sign up to SWIFT
to exploit this network. A hosted SWIFT bureau option can be combined with a
hosted payment and collections factory solution to provide an integrated system
that can also be extended to support SEPA. In addition, third party services
are likely to play an important role in achieving SEPA compliance in time – not
least managing the migration of existing DD mandates to SEPA DDs by converting
the existing domestic account details to International Bank Account Numbers
(IBANs) and Bank Identifier Codes (BICs).

With many customer
acquisition systems still not able to support IBANs, opting for a third party
to provide this data conversion and validation streamlines the process and
avoids the risk of cash flow interruption due to the presentation of incorrect
DD information.


With less
than seven months to go before compliance is required for any organisation
operating within the eurozone, organisations need to get serious about SEPA
quickly. Rather than considering SEPA as a necessary but unwelcome expenditure,
it is those organisations proactively looking to exploit the benefits of a
robust, indemnity free B2B DD scheme that will gain significant financial

The addition of this robust payments and collections
instrument to the existing opportunities provided by consolidating
international and domestic payments within a single shared service is
compelling. Combining the payment predictability offered by SEPA DD with global
visibility of cash delivered by the payments and collections factory provides
an unprecedented opportunity to improve working capital.


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