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Payments and collections factory: Realising cost benefits

Interest has been growing for some time in the concept of a shared service centre where payment activities, including Treasury and Accounts Payable, are centralised. Now, with the arrival of SEPA Direct Debits and Credit Transfer, organisations have the chance to create a truly international Payments and Collections Factory that enables efficient handling of payments to and from organisations in multiple countries at a price equivalent to domestic banking.

Centralised model

Over the past few years, growing numbers of international organisations have begun to explore opportunities for consolidating diverse accounting functions globally into a single, centralised Payments Factory. Operating in-house or via a third party bureau, the model typically handles a raft of payment instruments, using the SWIFT network to make both wire and bulk domestic and international payments.

This consolidated approach provides the chance to reduce costs, improve the speed with which invoices are issued, gain visibility over cash and enable payments to be more effectively timed across the organisation to improve working capital optimisation.

However, to date, few organisations have effectively extended this approach to include collections. Many, to be fair, have been deterred by the lack of viable business to business Direct Debit (DD) options. With banks in Europe having to adopt SEPA by early 2014, and the arrival of the SEPA Business to Business Direct Debit scheme, the collections landscape for businesses will be fundamentally transformed. With a single solution that can streamline not only European payments and collections via SEPA DDs but also domestic DDs via Bacs and international payments, including cheques if required, organisations can add collections predictability to the value of the centralised model.

Slow adoption

Yet as recent surveys have revealed, far too few UK companies have a handle on SEPA. According to PwC‘s latest SEPA readiness survey, with less than a year to go, 55 per cent of organisations are at risk of missing the February 2014 deadline. One of the problems is that many UK businesses wrongly perceive there is no need to comply until October 2016. In fact, any company with a European subsidiary, European Euro zone bank account(s) or collecting DDs in the Euro zone has to comply by February 2014. Failure to comply will result in failed payments and collections; no warning and no discussion.

Another problem is the UK’s attitude to SEPA. Far too many companies with operations in Europe are considering SEPA as just one more compliance requirement. This completely misses the significant opportunity SEPA offers to transform the way business payments are made; critically the introduction of a highly usable business to business DD instrument.

Without the restrictions of the different indemnity rules carried by the national DD schemes, SEPA DD is far more business friendly; with the limits in terms of indemnity and refund providing businesses with essential financial safeguards. In addition, SEPA DD provides the payment and collection predictability that is increasingly key to improving cash flow and enabling working capital optimisation.

Adding the ability to handle the entire DD lifecycle to the Payments and Collections Factory – from creating the DD mandate, through documentation, calendar, customer correspondence, and rejects will enable organisations to realise significant additional cost benefits.

Realising the vision

There are a number of fundamental building blocks for creating a Payments and Collections Factory. One of the first steps is to identify all corporate bank accounts across the globe a process that more often than not provides new cash visibility and delivers an early win for the project. Replacing multiple, diverse AP operations that are typically spreadsheet-based, with a single source of information enables the business to be far more efficient in terms of moving money, reducing overdrafts and exploiting working capital.

It is also essential to put in place secure and reliable connectivity to multiple banking partners. While Treasurers are increasingly looking to diversify banking relationships to minimise counterparty risk, implementing multiple connections to support those relationships undermines the cost benefits of the Payments and Collections Factory. Using the SWIFT network to provide a single, secure connection to all banks streamlines the process whilst delivering full transaction guarantees through tracking, time stamping and confirmation messages.

It is, however, important to note that organisations do not need to sign up to SWIFT to exploit this network. A hosted SWIFT bureau option can be combined with a hosted Payment and Collections Factory solution to provide an integrated system that can also be extended to support SEPA. In addition, third party services are likely to play an important role in achieving SEPA compliance in time not least managing the migration of existing DD mandates to SEPA DDs by converting the existing domestic account details to IBANs and BICs. With many customer acquisition systems still not able to support IBANs, opting for a third party to provide this data conversion and validation streamlines the process and avoids the risk of cash flow interruption due to the presentation of incorrect DD information.

With less than a year to go before compliance is required for any organisation operating within the Euro Zone, organisations need to get serious about SEPA quickly. Rather than considering SEPA as a necessary but unwelcome expenditure, it is those organisations that proactively look to exploit the benefits of a robust, indemnity free business to business DD scheme that will gain significant financial benefits.

The addition of this robust payments and collections instrument to the existing opportunities provided by consolidating international and domestic payments within a single shared service is compelling. Combining the payment predictability offered by SEPA DD with global visibility of cash delivered by the Payments and Collections Factory provides an unprecedented opportunity to improve working capital.

Richard Ransom is product marketing manager of Payments at?Bottomline Technologies.


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