29/02/2012 ,

Prepare for the payment factory revolution!

 

The harmonisation of payment formats in Europe and globally, together with advanced bank connection technology, have opened up new opportunities for companies to develop their cash flow processes to serve their business goals better. One way of doing this is with a solution called a payment factory.

Why do we need payment factories?

Many corporations manage their payments and bank accounts at the subsidiary level or unit level. This approach typically means higher transaction costs and fraud risks for the corporation, lack of control in the process and lack of cash visibility. A payment factory can provide a remedy for all these issues.

A payment factory is a combination of highly automated functions and controls that manage the inflow and outflow of payments. All these functions can be centralised at a single point, for instance the group treasury, or at two to three regional treasuries or payment centres, where all payment traffic is handled using a single payment material template and with banks that suit the company's operational needs best.

When a company decides to improve its payment processes and starts to build a payment factory, the starting point is usually to concentrate a corporation's purchases ledgers, dispatch of payment material and bank connections in the payment factory solution.

Centralising payment flows through a payment factory is a strategic decision made by a company's management and treasury. There is no single correct way of doing this. A payment factory can be part of a shared service centre but it is increasingly associated with the group treasury.

Additional benefits can be achieved with the payment factory by incorporating the corporates' internal payments into the process, maybe even with an internal bank for the intracompany payments. Furthermore, the management and monitoring of liquidity can also be improved with the payment factory, because bank account data can centrally and automatically be collected from a single point.

"If you link internal payments to a payment factory, you will eliminate intragroup transactions and cut down the number of external bank accounts. When you have fewer accounts and are able to reduce the number of country-specific local bank connections, the benefits become very tangible. Centralisation creates significant savings in transaction costs, human resources and the management of banking relations," says Ari Honkaniemi, Director at OpusCapita.

Another significant advantage is process transparency as this provides full control over all payment traffic.

"A highly automated solution like payment factory must have the most advanced security elements and user rights controls integrated into the processes. This eliminates unnecessary human interventions. Thus the automation of payments processes also offers a significant improvement in security and operational risks can be minimised."

"The fewer the bank connections, even with the same bank in different countries, the more cost efficient the payment traffic is, as the company can harmonise the connection points as well as the required process. With all payment material centralised in a payment factory and single-channel dispatch to banks, there is no need for as many country-specific proprietary formats and bank connections as before. In some cases, the company will be able to manage with only one format."

A corporation may use a single ERP system but more often there are several systems that generate payment materials and systems to which inflow must be distributed. This is not a problem with powerful payment factory middleware. The payment materials from different sources in different countries pass through the payment factory as a single channel to the corporation's banks. This is possible because the payment factory solutions include the possible material conversions  Thus, separate country-specific payment messages are not required for all the ERP systems, instead the company's units in various places can function cost-efficiently with one and the same process and payment material template.

Different connections for different needs

Payment factory is based on cost-efficient connections with the company's chosen banks. A bank connection is an advanced communications channel that companies use to send payment data to the bank and to receive account reports.
It involves the actual technical solution for the traffic between the bank and the company and a standard for generating payment data and receiving account report data.

Information security and encryption procedures also play an important role in all this. As automation increases, the information security requirements of a payment factory solution become stricter. For instance, the system must offer a full audit trail and transparency and proactively alert the user to discrepancies.

Treasuries often launch their payment factory projects by simplifying and reducing the number of their bank relationships. When comparing banks, companies do not tend to look at the big picture: which solution is best for increasing automation, which offers the most suitable technology or is the solution even feasible. Specialists in all of the above should be involved in the project from the planning stage.

An essential factor in security is efficient management of user rights, i.e. who is authorised to access which bank account and also who is authorised to define new user rights and remove old user rights.The payment factory system must automatically support the user right policy defined by the company and also prevent dangerous work combinations from being created
 
Jarkko Kerkola, Director at OpusCapita, says that to get the most out of a payment factory, a company should carefully evaluate which combination of bank connections is the most appropriate at any given time. 

"This can be direct connections to banks or a SWIFT connection, or both; for example by having a SWIFT connection with some banks and a direct connection with other banks. Payment factory middleware is a power generator that centralises payments. Banks also offer Single Point of Entry services which provide a single and easy payment traffic connection with a bank group in several countries."

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