Financial Technology

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Focus on Payments for Strategic Advantage Working capital optimisation has become a key priority for corporations of all sizes, with senior executives increasingly focusing on credit, collections and alternative financing techniques.

Focus on Payments for Strategic Advantage

by Andrew Owens, SVP of Payments & Managed Bank Connectivity,  SunGard’s AvantGard

Andrew Owens

Working capital optimisation has become a key priority for corporations of all sizes, with senior executives increasingly focusing on credit, collections and alternative financing techniques. In addition to these initiatives, centralising and streamlining payments can make a vital contribution to working capital performance, as well as reducing costs, increasing visibility and control over cash, and improving internal and external compliance.

The risks of payment inefficiency

According to a recent research report published by SunGard [1], only 20% of respondent companies have implemented consistent payment workflows across all of their entities, despite growing opportunities to do so, such as the gradual shift towards electronic payments in the United States and standardised payment instruments in Europe. The format on which euro payments are now based, ISO 20022, is rapidly becoming established as a global standard, making it easier than ever before to achieve a consistent approach to payments.

A decentralised, fragmented approach to payments brings a variety of challenges. For example, payments technology is typically acquired and implemented in each business function that is responsible for payments, precluding economies of scale and resulting in lower levels of automation and control than a single payments platform would allow. Each of these systems needs to be connected individually to the relevant bank(s), replicating resource requirements both to manage interfaces and support local formats. In many cases, there may be no connection between internal payment systems and banks’ electronic banking systems, resulting in manual, error-prone processes and high potential for fraud.

Management implications

From a senior management perspective, failure to maximise efficiency and control over payments has implications that extend significantly beyond operational and technology issues. Even in cases where a reasonable degree of automation has been achieved locally, it is difficult to standardise workflow controls across entities with disparate processes and systems, increasing the risk of fraud and interference in the payment process, increasing reputation risk, and hindering compliance with internal controls and external regulations. Furthermore, it becomes impossible to manage days payable outstanding (DPO) effectively, with the resulting loss in working capital efficiency.

Key drivers of centralisation

Implementing a centralised payment can be instrumental both in addressing these issues, and delivering additional cash and liquidity management benefits. A primary driver for many corporations that have implemented a payment factory is to reduce the risk or incidence of fraud. According to the research report referenced above, fraud prevention is the most common reason to centralise payments, noted by 29% of respondents. This applies both to companies that use electronic payment methods and those that are more reliant on cheques, such as in the United States. Furthermore, with cyber-threat becoming an ever more pressing issue for all organisations, risk of fraud or interference in payments processing should prompt corporations of all sizes to undertake a review their payment processes, in addition to the wider cost, working capital and liquidity management benefits of doing so.

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