Optimising Payments through a Payments-on-behalf of Model
by Gaetan Dumont, Senior Director, Group Treasury Operations, UCB
At UCB, we are committed to achieving the highest level of efficiency and control in our treasury activities, which included a centralised, harmonised approach to payments processing. We therefore made the decision to set up an innovative payment factory solution together with a streamlined banking structure that allows payments to be made on behalf of group companies. SunGard’s AvantGard Trax has played a pivotal role in automating our payment processes and standardising formats, both as part of the initial implementation in Europe and as the payment factory is rolled out globally. As a result, we have been able to achieve smarter operations around their payments processes as this article describes.
Centralising the payments process
In the past, we had in-country payment teams across UCB that were responsible for creating payment files from SAP in the relevant format and transmitting these to the bank, usually via a web-based electronic banking platform. Each team also retrieved MT940 messages (end of day bank statements) for reconciliation purposes. We recognised that maintaining payment teams in each country was not cost-effective, so we made the decision to outsource the payments process to a business process management company, with centralised teams in India and Romania.
Initially, we outsourced payments processes and the technology used to support them on an ‘as is’ basis. This meant that although personnel were physically located in the same place, therefore reducing the administrative overhead for business units, processes were still diverse and separate banking systems still needed to be maintained. Consequently, the advantages of centralised payments were relatively limited.
Harmonising the payments processes
We therefore made the decision to harmonise our payment processes, technology and formats by implementing a payment factory. As a small treasury team, we took a phased approach to implementation, starting first in Western Europe. The treasury team therefore appointed a partner bank for European payments to replace the variety of banking relationships that were previously maintained. Other banks will be appointed in the future to cover other regions.
Payments on behalf of (POBO)
The aim of our payment factory was both to enable treasury to centralise and harmonise our payments processing, but also to make payments on behalf of (POBO) group companies wherever appropriate to do so. This was to eliminate the need for business units to hold foreign currency accounts. By using a POBO model, only one account per currency would be required, from which payments would be made on behalf of all group companies, supported by an in-house bank to ensure the correct intercompany account postings. The bank would then provide information to the receiving entity as part of the remittance information to indicate the entity on whose behalf payment was made.
Implementing a POBO model is more difficult in some countries, such as France, so it is important to understand the regulations that apply, but where POBO is feasible, it can greatly enhance the efficacy of the payment factory. For example, we have been able to reduce the number of accounts and achieve far better visibility and control over cash. This approach was also acceptable to our suppliers who would receive cash from a different entity from the one they invoiced.
Payment factory infrastructure
We already had a single instance of SAP in place, from which payments would originate. Our payments solution needed to integrate with SAP but we decided that it would not be feasible to use SAP for all aspects of the payment factory for a variety of reasons. Firstly, we would have needed to implement the bank communication module (BCM) which would have resulted in additional cost and implementation effort, not least the version of SAP that we were using would need to be upgraded. Secondly, we were keen to implement a solution that was independent of either our banks or our core system vendor and therefore provided greater flexibility and versatility in the future. Consequently, we made the decision to implement a dedicated payment factory solution.
We reviewed various options for bank communication and ultimately selected SunGard’s AvantGard Trax solution. The solution supports the ISO 20022 PAIN version 3 message, which was our chosen global payments format, and can manage the information flows for a POBO model effectively.