Cash & Liquidity Management

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Payments in Practice: Achievements in Centralisation Drawing conclusions from two extremely useful case studies that deal with different aspects of payment centralisation.

CMU 2011

Payments in Practice: Achievements in Centralisation

The 5th Cash Management University, held in Paris, France in December 2011 included a variety of thought-provoking plenary sessions and in-depth workshops on key issues affecting corporate treasurers and cash managers. In the following editions of TMI, BNP Paribas will spotlight content and findings from some of these sessions. This edition focuses on one of the workshop sessions, which was on the topic of payment factories. Senior treasury representatives of two corporations, the first a senior treasury executive of a major technology firm and second, Maurizio Borelli, Director, Treasury & Risk Management of medical device company Sorin Group, presented their experiences of implementing centralised payments. The panel also included Filipe Simao, Head of Client Advisory and Jean-François Rallier, Senior Account Manager, Risk and Compliance, Fiserv, who shared their views and opinions on addressing common challenges and adopting best practices. The panel was chaired by Helen Sanders, Editor, TMI.

Case Study 1: A global approach to payment centralisation

Treasury organisation

The first panellist explained how his company has established a centre of excellence in Western Europe which manages treasury activities for the large majority of the group’s European business units, with a smaller centre in Eastern Europe. The latter centre was originally intended to be the regional treasury centre for Central and Eastern Europe, but its scope has subsequently increased to include other smaller countries of operation such as Portugal, Nordics, Middle East & Africa.

Until 2003, local finance staff conducted payments in each country, but this created issues in terms of segregation of duties and staff absence. In addition, payment processes were different in each country, which was sub-optimal due to the replication of systems and resources.

Addressing the challenge

Consequently, the decision was taken to establish a centralised payments factory. Treasury intended that the new payments factory would enforce standardised, secure payment procedures, reduce operational risk and cost, and create greater economies of scale. All countries in Western Europe (excluding Austria and Greece), the United States and Canada were included, covering all types of payments, such as accounts payable, payroll, tax payments etc., as these payment types are effectively used in all countries. The payments factory needed to support not only electronic fund transfers, but also some in-country payment methods, both electronic and paper-based. EDIFACT messages through an X400 communication system has been used until now, but the company is now migrating to SWIFTNet FileAct. This migration is due to be completed in early 2012, with XML-based messaging to follow. Establishing a payments factory was also an opportunity to rationalise banking partners, so six banks were selected through a request for proposal (RFP) process, each one covering one or more of the 20 countries covered by the payments factory.

Making it work

Since the payments factory was first established, the volume and value of transactions has increased steadily, now reaching around 1.8 million transactions per year, with a value of around €20bn.

Key to its success has been to put in place an appropriate funding mechanism. The existing in-house bank already provided day-to-day funding to most countries using intercompany current (call) accounts, and this is the model that is used wherever possible. In certain situations, the paying entity has to fund the disbursement accounts separately.

In around half the countries, the payments factory is able to operate using the ‘payments on behalf of’ model i.e., payments are processed from non-resident accounts in the name of the in-house banking entity, as opposed to opening separate accounts in the name of the local entity. This is evolving as conditions within each country change. When this has not been possible, dedicated accounts have been opened in the name of the relevant local entity, but these remain under the control of treasury.

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