Cash & Liquidity Management

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Picking Up Payments Progress Very often at treasury conferences, liquidity is described as the lifeblood of an organization, effective liquidity management is not just about the substance which is pumped around the body of the company, but also the arteries through which it flows. For this reason, a focus on payments and how they are channelled in and out should be amongst the priorities for a treasurer in the new financial climate in which we find ourselves. In this article, we survey some of the trends and developments in payments, particularly in the United States, where the move toward payment automation has taken place a little later than in Europe and parts of Asia Pacific.

Picking Up Payments Progress

by Helen Sanders, Editor

We have talked about the need for greater automation and efficiency in treasury for many years and indeed, a great deal of progress has been made. However, as with many major steps forward, it may take a crisis to act as a catalyst for real change. Very often at treasury conferences, liquidity is described as the lifeblood of an organization. While this analogy is a good one in many respects, effective liquidity management is not just about the substance which is pumped around the body of the company, but also the arteries through which it flows. For this reason, a focus on payments and how they are channelled in and out should be amongst the priorities for a treasurer in the new financial climate in which we find ourselves.

...a focus on payments and how they are channelled into and out of the organization should be amongst the priorities for a treasurer in the new financial climate.

In this article, we survey some of the trends and developments in payments, particularly in the United States, where the move toward payment automation has taken place a little later than in Europe and parts of Asia Pacific. What is significant, however, is not only the increasing synergy across regions in the challenges which companies are facing, but also the ways in which they are addressing them.

Drivers for Payment Improvements

As I mentioned, there has already been substantial progress by many firms in the way that they process payments. The concept of straight-through processing (STP) i.e. the flow of information from end to end with as much automation and little manual intervention as possible, continues to evolve, with both banks and their corporate clients setting ever higher bars of what is achievable and desirable. There are a variety of reasons why treasurers – and their banks – will seek to enhance payments processing further, including operational considerations, such as cost reduction and efficiency improvements, and strategic concerns, such as better information on which to make financial decisions and liquidity optimization:

  • In many firms, particularly those which still receive or pay some of their cash using checks, there are still inherent inefficiencies and excess costs in the payments process.
  • Manual payments/collections cause issues when trying to create the company’s current and forecast cash position due to the uncertainty of value date. This leads to treasurers being forced to maintain higher working capital levels.
  • Bank connectivity often remains fragmented, particularly when a company works with multiple banks. Establishing and maintaining interfaces between multiple systems is expensive, inhibits STP as these disparate systems often require different file formats, and creates control issues.
  • Disparate formats of information create issues not only with outgoing payments, but also with collections. For example, reconciliation is problematic if information is presented in different ways and with varying levels of detail.

Tom Halpin, Senior Vice President, Global Head of Financial Product Management, HSBC summarises,

A significant trend we see amongst corporate clients is the need for additional information in order to more effectively manage their working capital and improved operational efficiency. This trend is evidenced by the continued need to integrate detailed information on cash flows into ERP systems in order to reconcile this information in a more automated way.”

“A second objective is to maximize liquidity. Many corporates rely on multiple providers for liquidity, and they need to maximize their access to credit in the current environment, for which information management is critical.”

Consequently, many of the payments-related initiatives that we are seeing do not simply relate to the flow of payments in and out of a company, but the transfer of information which accompanies them. This is a significant driver behind global payments developments such as SWIFT Corporate Access and standardization initiatives (e.g. XML ISO 120022) in addition to regional and domestic schemes.

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