Centralising group payments: cost and quality advantages at every level
Introducing a payment factory into a group involves channelling all the banking orders from each group entity towards a specialised central service. The factory makes the payments on behalf of the entities and posts the associated advance payments in each entity’s intercompany accounts.
This type of system has numerous advantages for groups of any type and any size.
Immediate cost advantages
From a financial standpoint first of all, having all payments concentrated within one sole entity brings about a substantial reduction in costs:
- More favourable rates can be negotiated for processed orders and transaction fees
- Tariff advantages can be obtained that are not accessible when payments are dispersed
- The number of order remittances is reduced
- Exchange costs are decreased
- The number of bank accounts required by subsidiary companies is limited
- Competition among banks can be used to optimum advantage
So, for example, a group of health care institutions whose subsidiaries make 550,000 domestic payments annually totalling €2 billion, calculates the direct savings made from centralising these payments at €750,000 per year.
In addition to these direct gains, introducing a payment factory also brings indirect financial advantages:
- The centralisation of payments in foreign currency allows better management of the foreign exchange risk
- The specialised nature of the central service reduces internal processing costs
- Being able to control all group transactions leads to a more agile response to banking partners, thus obtaining improved cash management (flow turnover)
Major quality benefits
The benefits that can be expected from a payment factory from a quality standpoint are no less remarkable:
- The inclusion of a third party in the payment process considerably limits the possibility of payments that are fraudulent or do not comply with group rules, such as payments to unapproved suppliers
- Specialising the payment function allows for improved processing, and this means that payment reliability increases as well
- Since it allows an exhaustive and reliable analysis of transactions on the whole-group scale, it is a valuable decision-making tool for optimising relationships with external and intercompany suppliers
Effort is rewarded
All organisations whose payments are dispersed among different entities can make savings by instituting a payment factory. Nevertheless, based on the specifics of each group, the key issues for each involve different transactions.
For example, by focusing on centralising the foreign currency payments of some 200 business units spread across 26 countries, an industrial group is achieving gains estimated at over €3m per year; at the same time, it is improving both its currency hedging and its payment reliability (now 99.7% of orders are processed end-to-end without incident).
In any event, the cost and quality advantages of centralising all or part of a group’s payments fully justify the initial planning effort that is needed to set up a payment factory. In the industrial group mentioned above, once the planning and technical investments were made, the number of transactions processed in the factory increased tenfold in eight years, without any increase in the structural costs of the central service.
The payment factory in Exalog’s Allmybanks software
The payment factory module that is integrated into the Allmybanks application (supplied by Exalog) is designed to provide these advantages, whatever the size of a group or its international reach. From a structural point of view, the fact that this application is provided in SaaS mode allows for flexible implementation of the centralised payment system:
- Standardised validation procedures that are rigorous and auditable can be implemented group-wide before the factory goes live
- Entities can be integrated into the factory progressively; those that are not yet integrated continue to make payments from their own accounts (though the tracking of these payments is centralised)
- Technically, implementing the system requires only adjusting the settings in the application, with no software development required
Centralisation adds an intermediary to the payment process. It is therefore indispensable to provide precise information to the sender on the status of their payment. Thus, in Allmybanks, each entity can closely track the routing of the orders it has sent to the factory:
- Awaiting processing
- Sent to the bank
- Processed by the bank
- Received by the beneficiary
At Allmybanks, the functioning of the payment factory is akin to that of a bank. The intercompany account is used in the same way as a bank account, and the parameters for the order sending procedure (validation workflow) are the same as those for traditional bank payments. This principle, which greatly simplifies implementation, also allows the same types of charges to be applied to intercompany accounts as to bank contracts, thereby allowing the services of the payment factory to be reinvoiced.