Cutting-Edge Payments and Receivables

by Liba Saiovici, Latin America Product Management Executive, Bank of America Merrill Lynch

In Latin America, as elsewhere in the world, core treasury functions, such as payments and receivables, are being carefully looked at for improvement. Technological innovations being developed today could provide significant opportunities for companies seeking to increase efficiencies, reduce costs and enhance their reconciliation processes.

And, while these new solutions might be easy to ignore – as many are only now being explored for their potential – treasurers are taking the time to gain a better understanding of these developments. They can then position themselves to take advantage of these new solutions as they become available.

Three topics are of particular interest for companies operating in the region: the use of person-to-person technology expanding into the corporate space, the potential applications of blockchain technology and the arrival of automatic reconciliation solutions.

Person-to-person payments

Over the last few years, banks have focused a great deal of attention on making existing payment methods easier, safer and cheaper. Nevertheless, there is still room for improvement.

A key area of focus is mobile technology. In the consumer world, mobile banking adoption has expanded rapidly in the last few years. Treasury staff who use mobile banking technology in their personal lives are eager to leverage similar functionality in the business environment. In response, banks, recognising the potential for mobile technology in the corporate space, are working to meet these demands.

One area which has begun to make the evolution from consumer to corporate banking is around the use of person-to-person payments technology. This technology helps eliminate the need to issue cheques by enabling companies to make payments to individuals using the recipient’s mobile number or email address.

In this scenario, the removal of paper cheques from the process is appealing, but the real benefits of a mobile payment approach go beyond simply paper-to-electronic and can be quite significant. For the company making the payment, end-to-end disbursement costs can be reduced by as much as 75% compared to traditional payment methods. Unlike other electronic payment methods, companies are not required to manage bank account details for their customers, resulting in reduced complexity and risk. The technology also brings significant benefits for beneficiaries, who do not need to provide their bank account details and can typically expect to receive funds sooner than with other, more traditional, payment instruments.

While this solution has yet to be launched in Latin America, it is already yielding significant benefits for companies in other regions – and it’s not too early for treasurers to begin exploring how this type of offering could benefit their business.

Building on the blockchain

Less imminent, but showing revolutionary potential, is the use of the technology behind cryptocurrencies such as Bitcoin, called the blockchain. This technology looks very promising, has the potential to trigger a transformation in almost every aspect of commerce, and could change the way we do business. Talking specifically about cross-border payments, with many Latin America corporations setting their sights on overseas expansion, demand for cost-effective, streamlined international payment solutions is growing and the benefit of the blockchain technology to make these cross-border payments faster - with more transparency and less cost - cannot be ignored.

One of the most exciting aspects of Bitcoin is the fact that each transaction is recorded in the blockchain, a public ledger which makes the flow of funds completely traceable. The blockchain creates a secure record of value while safeguarding the anonymity of individuals and companies involved in the transaction. Using blockchain technology, a universal digital ledger could be used to transfer funds between parties, thus removing the need for intermediaries and shortening the settlement time from days to a few minutes or even seconds. In addition to providing near real-time settlement, this type of transaction could eliminate many of the costs associated with traditional cross-border payments.

Among the most important challenges to be sorted out are regulatory and security issues - but these are not showstoppers. Financial institutions and technology companies continue exploring the possibilities with this new technology with an aim to make it easier for our corporate clients to do business and achieve greater efficiencies.[[[PAGE]]]

Automatic reconciliation

The focus of emerging technologies is by no means limited to the payments space: innovation is also addressing the challenges associated with accounts receivable and, more specifically, the reconciliation process which, for many firms, can be extremely challenging.

Many companies in Latin America have large teams specifically tasked with matching payments to the relevant clients and invoices. In the past, efforts to streamline reconciliation have had limited success – but a new automated accounts receivable matching solution could help companies post cash faster, reduce days sales outstanding and increase efficiency.

The solution, which uses rules defined by the corporation, matches payments to the corporation’s open accounts receivable files and identifies exceptions which can then be corrected online before they are posted. By reconciling incoming payments faster, companies may be able to free up their customers’ credit limits – potentially increasing sales – while also improving their own working capital cycles.

The benefits that this technology can provide are illustrated by a solution recently implemented in Brazil by one of the world’s largest companies. In Brazil, retailers typically upload files using their online portals so that suppliers can access information regarding payments and discounts. This information, however, must be accessed manually, making for a very time-consuming and labour intensive reconciliation process.

Leveraging technology, the new solution automatically retrieves information from the payer’s portal, matches it against receipts on the bank account, and then produces a file, which can be uploaded into the vendor’s ERP system. This automated process enables reconciliation to take place on a daily basis (or ‘same day’). While the initial implementation had challenges, specifically related to unique local file formats, today the solution has surpassed the company’s initial expectations, with approximately 500,000 invoices processed in the first month. As a result of this success, there are multiple corporations in Brazil that are currently evaluating the solution.

Choosing the right provider

Technology can play a significant role in helping treasurers achieve their goals. From cutting-edge solutions already making inroads in Latin America, to the promising future uses of cryptocurrency technology, many new and upcoming developments are showing potential to help treasurers in the region tackle payments and collections more effectively.

To maximise these developments it is essential to choose the right banking partner to help you capitalise on the new opportunities technology solutions present. New solutions need to meet the unique requirements of the region, so companies should aim to work with banks that have an optimal combination of both global and broad local knowledge. At the same time, multinational companies should work with global banks which can provide consistency across different markets and have the scale needed to invest in truly innovative solutions.