The challenge:

The company operates a shared services centre (SSC) and is responsible for paying approximately 900k vendor invoices in financial year 2012/13 from the various business entities. The Company has been looking for a better solution that would allow it to enhance its payment process, controls and ensure timely payments. The objective was to pay in a timely manner, identify advantages associated with early payment and better manage cash flow and reconciliation.

The solution:

After considering various options, the Company selected the Virtual Card Account (VCA) programme which has transformed the payment process and created multiple benefits for the business units.

The VCA is very efficient and the set-up and implementation cost is minimal as no unique software or hardware is required. A secured website is provided by the bank that allows a client to enter the parameters of each purchase. Security is enhanced as there is no corporate or procurement card that can be lost or misplaced. The merchant enjoys the value immediately as the standard payment terms are reduced to 24-48 hours as the bank will perform the settlement directly with the merchant.

As the merchant is paid quickly by the bank, working capital management is enhanced for both the business unit and the merchant. Levels of data are enhanced and can be integrated into the ERP applications. This greatly facilitates reconciliation, controls and transparency.

As Victor Lam, Head of Sime Darby Global Services Centre explains, “this is essentially a solution that benefits both the business unit and the merchant. It is also easily transferable to any merchant that accepts a credit card and is seen as the future manner in which corporates will settle bills that require multiple, high-frequency payments.”

Best practice innovation:

Through implementing VCA, the Company has been able to create unique, virtual, card-less account numbers that are dedicated to an individual transaction. Credit limits, timeframes and period of use are the parameters that are confirmed via the bank’s online programme administrator-based system. This also enhances reconciliation as a single dedicated account number is reflected for a single event as opposed to a card being used for hundreds if not thousands of transactions. It also enhances its working capital by allowing days to pay to be extended.

The company started using the VCA for utility payments and is now settling bills and related charges associated with the business activities. This process replaces cheques, wire payments and other inefficient processes by creating specific account numbers for each utility payment made by the business unit.

“The solution is having a transformative effect on payments in Asia as it is providing a solution that creates value for both parties and at the same time strengthens controls and trust in the overall payments industry. This solution is allowing us to not only enhance process efficiencies associated with utility payments but is now being expanded to other general procurement needs. The solution is enhancing the merchant/client relationship and helping to transform the payments landscape,” concludes Lam.