Luc Belpaire
product director, payments,
SunGard’s AvantGard
business unit
Emerging trends and continued developments in payments and receivables systems deployment, workflow and automation technology are helping companies understand where their available cash is and how they can unlock it from the payments and receivables system to utilize it elsewhere in the organization. Large organizations typically have many back-office systems (enterprise resource planning (ERP) or accounts payable (AP)/accounts receivable (AR) systems, cash management, payroll, etc.) that touch upon payments and collections and as a result, liquidity management. These ’silos’ make it difficult to move quickly on opportunities that have a positive effect on liquidity. A solution to this problem is to implement a ‘hub’ on top of these back office systems, shielding the complexity of changes from the silos. In other words, there is no need to invest in many potentially expensive back office system changes - only one investment in a central hub will do the job.
Payment and Direct Debit Factories
The implementation of the ‘hub’ principle is well known for payment processing and is often called a ‘payment factory.’ Many companies have been using them to centralize and automate their payment processes across various payment types, payment formats and banks, as well as connect disparate systems to create one convenient, actionable view of payment flows. As a result, payment factories contain information from various systems across the enterprise, such as ERP systems, payroll systems and treasury management systems (TMS), which can be extracted, analyzed and used for cash management purposes. They also provide information about payment status that can be shared with external parties like suppliers, enhancing relationships with them.
Some companies have extended their payment factory to other areas such as account statement processing and direct debits (a collection instrument), making them more than just ‘payment’ factories. Direct debits (DD) are cheap collections instruments and help to standardize and automate the collection process, significantly reducing operational costs, speeding up collections procedures and lowering days sales outstanding (DSO).
A key feature of DD instruments that creates greater efficiency is the establishment of pre-determined collection dates. Rather than having to wait for the customer payment, a DD instruction can be sent to the bank with a well-defined and clear due date. Having the exact dates of the collections increases the visibility of cash flows for better liquidity management, while also reducing credit risk. By adding or implementing direct debits into a payment factory - or better a ‘payments and direct debits factory’ - the collection process across various direct debit schemes and formats can lead to the same operational benefits as mentioned for the traditional payment processing. This includes allowing for a better use of staff resources, as they become free of time-consuming, manual processes.
Using Payments Automation Technology to Improve Liquidity Management
Leveraging the new developments in payments automation technology will help lower operational costs and improve liquidity management, optimizing the organization. The centralization of DD processing in a central DD factory is one example of payments and receivables automation technology, and the continued progression of SEPA regulations provides an excellent incentive to embrace the technology today. It will help the organization comply with SEPA regulations, conform to standards and enable companies to take advantage of the automation and streamlined processes that SEPA regulations engender.
The current economic cycle should also be a powerful incentive for many companies to adopt automated payments and receivables technologies that will improve liquidity management. Enterprises that are unlocking the cash moving through their payments and receivables systems are better able to make the necessary adjustments to operate as efficiently as possible through this downturn. For those that are not managing their liquidity well, this time can create the tipping point needed to adopt these solutions and should allow them to be championed and shepherded through the organization. A down economy creates opportunities like this. Once in place, these technologies will create a system of best practices in liquidity management that will continue to be leveraged, regardless of the economic cycle.