Global Volatility Prompts Payments Factory Momentum

Improved cash visibility and control have become essential in today’s volatile global economy. Add in demands for reduced costs, streamlined processes and a chance to regain the upper hand in banking relationships and it is no wonder that organisations are increasingly considering the concept of a Payments Factory. With cloud-based solutions and growing payment standardisation, the considerable benefits of a Payments Factory have never been more compelling.

Global cash control

Bank failure, country bailouts and ongoing concerns regarding the Euro continue to challenge business. For any organisation, the need for improved, preferably real-time visibility and control over cash is now becoming critical.

Yet with most companies running multiple bank relationships over multiple geographies, with each bank demanding different payment file types and payment cut off times, imposing control over this process is tough. Information cannot be easily retrieved; and money cannot be rapidly relocated across borders. Many organisations are now employing dedicated individuals to do nothing more than pull together statement information from each bank in a bid to create an accurate snapshot cash position on, perhaps, no more than a daily basis.

This is simply not good enough in a volatile economy. Organisations need better visibility; they need more control over payment processes; and they need to be able to shift money between banks and geographies with more confidence and in a far more timely fashion.

Centralised payments

As a result, there is a growing interest in the concept of the Payments Factory – a shared service centre where payment activities, typically Treasury and Accounts Payable, are centralised. Exploiting web-based technologies to enable the creation of virtual Payment Factories that span multiple geographies, the model offers a raft of potential benefits from consolidating bank relationships to improved security and meeting compliance requirements.

The essence of a Payments Factory is simple: it is the creation of a single hub that can manage all payment and collection types – from Treasury and payroll to expenses, direct debits, cheques and supplier invoice payments; handle all balance and transaction reporting; provide all corporate to bank exchanges, such as deal confirmations; and manage two way communications with all banks.

Of course, this is not a new concept. However, one of the key changes driving the growth in Payments Factories is the increased standardisation in payment methods – from SEPA to SWIFT for Corporates for multi-bank connectivity. With a single, consistent way of managing the provision of information to banks, SWIFT enables organisations to consolidate banking relationships without incurring additional IT overhead, reducing costs and attaining better levels of service from the remaining banks.

Visible cash

The key requirement of a successful Payments Factory is the ability to consolidate multiple payment flows across an organisation to impose more control over the payment process and deliver the real-time cash visibility now critical in a volatile global economy. This means ensuring every payment type can be handled within the Payments Factory – from domestic to SEPA, electronic to cheques – a payment method still popular in both the US and parts of Europe.

One of the primary benefits of this approach is a chance to reduce cost. Organisations can rationalise e-banking platforms, simplify and minimise the number of systems that need to be supported and maintained, while increasing straight-through processing (STP). However, in the current climate, the real driver for the Payments Factory is improved visibility over cash and better security and compliance.

Rather than relying on complex manipulation of multiple Excel spreadsheets to attain a view on the current cash position, by automating the reporting of cash balances directly from each subsidiary’s bank account, the centralised Treasury team has continuous access to an accurate and up-to-date cash position.

In addition to providing greater visibility over all accounts and balances across the enterprise and a clear picture of cash flowing in and out of the organisation, the Payments Factory also provides better control over timing for supplier payments, early payment discounts and investment opportunities.

Operational benefits

Creating a shared service centre in this way enables an organisation to meet the key objectives identified by EuroFinance in research commissioned by Logica: namely greater visibility and control over cash (79% of interviewees). However, a Payments Factory can provide a number of additional benefits to organisations – from improved security and compliance through the use of secure channels such as SWIFT to minimising operational risk by introducing automation and reducing manual interaction in the payments lifecycle.

In addition, a Payments Factory provides an excellent platform for consolidating bank partners and driving far better relationships with the remaining banks. By providing a single payment solution that can handle any bank file format or requirement, it can minimise the impact of shifting banks and overcomes the lock-in effect of proprietary e-banking platforms that has constrained organisations in recent years. The result is better service from the banks, lower cost per transaction and a greater flexibility in payment flows globally.

Furthermore, the Payments Factory can also be extended beyond Treasury and Accounts Payable to include Accounts Receivable. Organisations can use information within bank statements – typically standard SWIFT messages – to automatically identify receivables and post these directly to the relevant account; and they can also embrace a more effective collection strategy via flexible support for the new SEPA direct debit schemes. It can also be used to improve inter-company flows, creating a centralised location for all internal and external payments and collections.

Conclusion

Given the level of global uncertainty and the need to impose greater control and visibility over cash management, many organisations are now considering a Payments Factory. And with growing global standardisation of payment instruments and processes, the model is becoming far easier to achieve. From SEPA to the SWIFT Common Global Implementation Initiative, the ability to manage a raft of payment types, across multiple banks from one location provides the critical agility and flexibility in banking relationships that is key in a volatile climate.

A Payments Factory meets a raft of key objectives – from delivering a lean corporate infrastructure to providing a platform that can respond to global current and future regulation, market trends, and business services. It enables corporates to rapidly scale up (or down) as business volumes change and facilitates greater operational efficiency. Critically, however, it delivers the real-time visibility required to transform cash management and respond to evolving corporate risk.

Richard Ransom is an expert on UK Domestic, SEPA, and SWIFT based payments and collections. Based in Reading, UK, Richard combines more than 15 years of experience with a broad understanding of UK and European payment regulations to set Bottomline’s payments-related product portfolio and strategy in the EMEA region.