Using SEPA to review payment factory benefits
With the Single Euro Payment Area (SEPA) deadline just six months away, many companies are busy preparing to use SEPA-compliant payment standards. With the restructuring that this entails, is now a good time to consider the benefits of a payments factory?
While implementing a payment factory means significant organizational change and cost, it is an excellent tool for enhancing visibility and control of cash and liquidity – two factors at the top of all corporate agendas.
SEPA is also a catalyst for implementing a payment factory. From February 1 2014, all standard euro payment transactions in the SEPA zone will have to be executed as SEPA credit transfers or direct debits. By that date corporates will be obliged to adopt the ISO 20022 XML format for their SEPA payment messages, as well as the mandatory use of BICs, IBANs or the direct debit mandate format. The reorganization involved in complying with SEPA could provide an opportune moment to implement a payment factory as well.
A payment factory can bring huge advantages to a corporate but the benefits depend on how the factory is set up. The most straightforward model is where the payment factory simply acts as a ‘forwarding service’ for the internal subsidiaries. The main advantages of this model include: increased visibility in cash and liquidity; improved control in both the payment authorization process and in the ability to maintain bank master data at a central location; IT savings; and savings in manpower.
In the ‘Payments On Behalf Of’ (POBO) payment factory model, payments are routed to external bank accounts, which are owned and controlled by corporate treasury. This produces the further advantages of reducing the amount of bank accounts required as well as reducing transaction and FX fees because more payments are executed as domestic payments rather than foreign payments.
Companies considering the implementation of a payment factory should ask themselves the following questions:
- Will we also implement an IHB?
- Will we rationalize our banking relationships?
- Will we use SWIFT to connect to our banks?
- Will the payment factory be managed by the corporate treasury department or outsourced to a SSC?
- Will we rationalize our ERP landscape?
Implementing a payment factory should not be taken lightly. It requires significant up-front investment in IT licenses and systems, as well as the cost of internal and external resources. However, a common payback period for payment factory projects is one to two years.
The proximity of the SEPA deadline means that including a payment factory implementation in a SEPA migration project would now be unfeasible for most companies. However, the opportunity is not completely lost. SEPA provides the treasury department with an opportunity to review the current payment process and to create a roadmap, which can outline the different changes required and their timelines. As such SEPA should be seen as a perfect opportunity to put this on the agenda and create a future payment processing model.
Please find here the extended version of this article.