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Increasingly, global enterprises are evaluating the benefits of creating centralized payment factories (often within a shared service center). With this model, the thought is that treasury and accounts payable groups can better ensure standardized processes, improve risk management, reduce costs (e.g., more efficient process, lower FX and bank fees, etc), and create a higher level of visibility across the entire enterprise. Global operations, no matter how small or large, come with the responsibility of managing various sets of highly-complex rules and regulations and general information around suppliers, payments, payroll, taxes, invoices, reimbursements, etc. For many organizations, these activities are handled within each country or region of operation, leading to costly and often duplicate efforts, multiple banking systems, inconsistent processes and a general lack of visibility and accurate information. This is why over the last several years many global enterprises and increasingly mid-sized business have set up payment factories.
Initially, payment factories or hubs were focused on executing payments due to the efficiencies gained from centralized processing. Today, however, many of these factories have taken on invoice processing and management (some have taken on collections) and accounts statement aggregation and as a result have developed into more sophisticated central cash flow management hubs.
Effective payment factories rely heavily on technology (for example, solutions from providers such as Bottomline Technologies and Kyriba). Technology that is able to connect and integrate multiple systems that are used to initiate payments (ERP, Treasury management systems, etc). These solutions enable more efficient processing of payments, offer routing and approval workflow and link to appropriate banking systems.
In order to effectively manage cash and working capital, treasury groups want to gain greater visibility, control and insight from their operations which are quite often fragmented across multiple disconnected systems. With a centralized payment hub, enterprises can get a global view of payables, payment processes, efficiency, suppliers and of course accurate and up-to-date data. They also gain the benefit of rationalizing what may be several bank accounts with several different banks. All of this can be used to more accurately forecast cash flow.
When should you consider a Payment Factory?
Payment factories may not the right strategy be for every organization, however, if you fall into one or all of the following categories then it might make sense to evaluate:
- Your organization has a significant amount of payments that are made in different currencies.
- Too many banking partners globally
- You company has operations within the Eurozone. SEPA rules and regulations in many cases have been the main driver of centralized payment factories.
- Centralization will help to speed up invoice and payment processing, which will enable the organization to capture more early payment discounts.
