Treasury Today Country Profiles in association with Citi

Next generation payment factories

Effective cash management is a top priority for treasurers today. Payments (and collections) are an obvious area that can be addressed in pursuit of efficiency gains. The new generation of payment factories uses sophisticated technology to give corporates greater visibility over cash flows and enhanced efficiency through process automation and centralisation.

Payment factories are not a new phenomenon. Many large multinationals have already tackled the issue of the proliferation of different systems in different geographical locations by centralising payment processing across their various locations, and implementing payment factories. Aside from the elimination of fragmented and incompatible systems, potential benefits to this centralisation include:

  • Reduced banking fees due to the requirement for fewer local banking relationships in subsidiary locations.

  • Increased automation and straight through processing (STP).

  • No longer a need for maintaining costly proprietary bank connections.

  • Centralisation into one system negates the need to maintain and upgrade many different systems at different times.

  • Aids regulatory compliance in transparency and documentation of processes (Sarbanes-Oxley).

The implementation of a payment factory can improve efficiency in numerous processes, including receiving, validating, sending and settling payments. Through consolidating payment flows into one system, treasurers can achieve far greater visibility of the company’s cash flows, thus facilitating more effective cash flow forecasting.

The changing regulatory environment in Europe, particularly in relation to SEPA and the PSD, will increasingly affect the payments and collections process for corporates operating in Europe. As the EU pursues its goal of a single market for financial services across all 27 members and the elimination of any distinction between domestic and cross-border euro payments between Eurozone countries, the longterm outlook for payments in Europe looks set to be transformed. Now is therefore as good a time as any to start thinking about how a next generation payment factory could increase efficiency and cut costs in your business.

Next generation payment factories

In this post-crisis environment, treasury departments all over the world have had to become more efficient, and the new generation of payment factories reflects this by building on the efficiency gains of its predecessors.

An important tool of which these new payment factories take advantage is the internet – through integration with online data tools that facilitate enhanced working capital management. They can draw on information from numerous systems across the company – including TMSs, ERP systems and payroll systems – thus providing key information in relation to cash flows, which can aid in the forecasting of cash positions.

The internet also provides corporates with access to a wide array of services that can be accessed online without the need for costly software installation and maintenance. We will look at outsourcing later on in this article.

Working capital management tools

Today’s payment factories facilitate improved working capital management. One way in which they are able to achieve this is through the accounts receivable (AR) process – making them not just ‘payment’, but also ‘collection’ factories. The new generation of payment factories is able to process direct debits, thus reducing a corporate’s days sales outstanding (DSO) – a key area of working capital optimisation. In Europe, an increased uptake of the SEPA Direct Debit (SDD) schemes should serve to further reduce DSO by standardising the processing of direct debits within the Eurozone.

In terms of accounts payable (AP), where the previous generation of payment factories could handle invoices and payments, the new generation can provide real-time information about payment status and remittances to suppliers. This increased transparency can help corporates to improve relationships with their suppliers, which could in turn translate into improved days payables outstanding (DPO). Intra-day activity and account statements from the previous day can also be shown, thus further facilitating effective working capital management.

A further advantage of internet use by payment factories is the ability to manage beneficiaries online. New solutions allow corporates to send email notification to the beneficiary, who can then be set up as a receiver of payments on an online platform. The advantage of this is that the beneficiary enters their own details, thus reducing the likelihood of errors in data entry. The email notifying the beneficiary that payment is on its way also has rich invoice data attached, thus facilitating payment reconciliation.

International payments

As mentioned above, the entry of SEPA and the PSD onto the European payments landscape will increasingly affect cross-border payment transactions. David Sear, Managing Director, Travelex Global Business Payments questions whether these Europe-wide regulations go far enough, however, observing that corporates in general require not a euro solution, or a European solution, but a “fully-fledged international solution for all of their payment needs”.

George Ravich, Executive Vice President and Chief Marketing Officer, Fundtech is also sceptical about the immediate impact of SEPA. “It’s very much in neutral right now,” he observes. “There are some very compelling reasons why corporates will want SEPA, and these just haven’t been marketed to the corporates yet.”

If your company makes numerous international payments, consider the benefits of a payment factory with access to local clearing. Under the traditional international payments framework, banks can charge a fee to carry out an international transaction and the final amount credited can suffer from FX translation. International payments usually take three to five days and the exact payment date can also be in doubt.

A payment factory with an extensive local clearing network can operate as a hub for a company’s international payments, eliminating fees and loss through currency exchange. Payments can also usually be made same day, thus shaving considerable time off the length of the payment process, and improving forward visibility of cash flows.


SWIFT connectivity is another feature of the new generation of payment factories, whether via a SWIFT service bureau or direct access to the SWIFT network. This further simplifies corporate access to banks by providing functionality, such as message validation and reformatting, via a single point of contact. SWIFT connectivity also increases the number of banks that corporates will have access to via their payment factory. Other working capital benefits may be achieved through SWIFT connectivity, including improved visibility and increased automation.

Ravich of Fundtech – which has the world’s largest SWIFT service bureau – observes that the financial crisis has encouraged much greater interest in SWIFT among smaller corporates who can no longer sustain the expensive and costly process of establishing and maintaining multiple proprietary connections with their banks. SWIFT provides a single interface which corporates can use to switch from bank to bank, thus providing much greater flexibility should their bank run into trouble. While the numbers are still small, Ravich comments, the percentage increase is significantly higher than ever before.


The next stage in the consolidation of payments and collections is the implementation of e-invoicing as a means for automating the AP process. The payments cycle can be significantly reduced by optimising the incoming invoice flow through the elimination of paper invoices in favour of electronic methods. Electronic invoice data can then be standardised to the company’s preferred format, thus allowing for the automated processing of payments.

While this is not yet a fast-growing trend, adoption of e-invoicing by corporates is increasing significantly. Ravich observes that this is an area where the finance function of the business must play catch-up to other departments in the organisation. Whereas other departments have automated processes in place, the finance function often still uses paper-based methods for invoicing.

E-invoicing would address the key issue of reconciliation – which can be automated through a company’s ERP system. Ravich urges corporates to consider e-invoicing, citing it as “The number one thing that would improve the efficiency of corporates in terms of treasury workflow and improve their ability to manage working capital.” This improved efficiency would come from greater visibility of liquidity and better cash flow forecasting.

In-house vs outsourced

Many functions of a payment factory can easily be outsourced. Indeed, Sear argues that corporates of all sizes should seriously consider this option: “Unless you’re a very large organisation with complex internal treasury needs, any international company should consider outsourcing.” A key advantage to outsourcing a payment factory is that it takes away a lot of the cost and complexity by removing the need for numerous bank accounts in various currencies.

Outsourcing also gives corporates access to the technology that is too complicated and expensive to purchase and maintain in-house. Improved internet speeds and security have meant that now, more than ever before, the infrastructure in place is mature enough to support outsourcing. There is increasingly a trend for banks to offer Software as a Service (SaaS), where smaller companies that don’t want to buy and maintain the software can, for a small upfront integration fee, access the service on a per transaction basis.

As regulation looks set to make a significant impact on the way banks do business, the banks will be looking to provide more services to corporates. Increased reserve requirements mean that banks will make fewer loans, thus reducing the proportion of their income that comes from loan interest payments. As a result, banks will be looking for ways to embed themselves in their corporate clients’ business, which is likely to result in a greater range of products and services available to corporates through outsourcing.

Implementing a payment factory: a checklist

  • What are the company’s current payment procedures? What type of payments and payment methods do business units use? What are the volumes?

  • What cost savings could be made from centralising to a payment factory?

  • What is the level of access to local clearing networks? Is this sufficient for your international payment needs?

  • Will your payment factory use SEPA standards?

  • Would your company benefit from a payment factory with SWIFT connectivity?

  • Do you want to consolidate your banking relationships or maintain multibank relationships?

  • Would the company benefit from e-invoicing?

  • What will be the benefits of a payment factory for your suppliers? How will you make them aware of these?

  • What cost savings could be made from outsourcing your payment factory?

  • What are the company’s future plans? Will these affect your payment and collection needs?

Going forward

An ongoing trend in the payments space is the keenness of financial institutions to partner with payment institutions to offer ever more sophisticated technological solutions. This continuing co-operation will drive innovation and make further steps towards resolving some of the issues associated with international treasury, such as cost, complexity and cash flow forecasting. Coupled with continued efforts to standardise payment formats, this will contribute to the ease and efficiency with which corporates can manage their international payments.

Another trend that is already emerging is in the way corporates interact with their banks. Serviceorientated architecture (SOA) enables banks to offer a new level of sophistication to payment services, such as the ability to identify errors before the transaction takes place and to track a payment through the entire end-to-end process.

With software developments occurring at “warp speed” there are likely to be numerous advances made in the capabilities of payment factories going forward. It is important for treasurers, therefore, to stay up-to-date with any new developments in order to ensure that the treasury is kept equipped with the best tools.