Eliminating Payments Risks in 2023 with Payments Hubs
Corporations are changing the way they process payments. Technology, regulation, globalization of trade – all are factors driving the need for payments centralization. CFOs and treasurers worldwide recognize that fragmented and decentralized payment processes do not offer the efficiency, visibility or security expected to safeguard cash movements and a modern cloud-based payments hub is the answer to it.
The primary benefits of centralizing payments with cloud-based payments hubs are:
- Visibility into outgoing cash flows
- Reduced payments fraud and improved operational risk management
- Control over payment timing
- Standardized procedures across all regions
- Increased efficiency and reduced costs
- Regulatory compliance.
Visibility into Cash Flows
Control over timing of payments and visibility into the amounts of those flows is central to effective cash management. Cash managers, armed with this control and visibility, can deploy cash effectively and optimize costs to fund payments and increase returns on surplus cash. When combined with good cash forecasting, significant business value can be created, as cash managers can make these decisions more proactively.
Reduced Payments Fraud and Improved Risk Management
Ideally, payment initiation, approval and release procedures should be consistent across all regions. While decentralization makes this more challenging, the need to standardize can be justified simply as a means to minimize (or eliminate) payment mistakes and payments fraud. Manual payment processes create weaknesses that expose an organization’s cash to potential loss. Establishing an automated workflow, pre-defined approval limits, and authentication requirements for each payment tightens controls, reducing potential issues. While there is a balance of steps for different types and amounts of payments, organizations can reduce risk by mandating a separation of duties at each stage of the workflow.
Increased Efficiency and Reduced Costs
Organizations that do not centralize payments will incur additional costs in terms of time spent on internal resources. Companies have to support multiple systems, which multiply internal costs to support payments. This redundancy likely increases bank service costs as well, as greater transaction volume with a single bank often yields lower per transaction costs. Consolidating systems reduces costs, both directly and indirectly. Often these benefits more than justify a payment centralization project on their own, irrespective of the improved risk management and optimized cash management opportunities.
SEPA has certainly been a driver for centralizing payments and implementing payment factories within the eurozone. The benefits of SEPA shouldn’t be restricted to EU-based companies, though. The real opportunity for treasurers is to use SEPA as a vehicle to improve their overall business processes, beyond just meeting local compliance needs. Organizations can drive towards standardizing payment workflows, optimizing bank relationships and payment services with those banks, and ensuring they can centralize visibility and control of payments.
Steps to Payments Centralization with Cloud-based Payments Hubs
To implement payments centralization with a payment factory, either just for payments or part of a shared service ‘on behalf of’ model, it is important to consider the following:
1. Determine who is involved. Centralizing payments involves multiple teams – including, at a minimum, treasury, accounting, accounts payable (if separate), and the team that manages suppliers. When direct debits are being considered, the team that manages customers is also necessary. This cross-departmental team can ensure that everyone understands the overall opportunity, the benefits and ownership of the payment workflows.
2. Evaluate required banks and services. One way to achieve cost reductions is streamlining banks and services. By reducing connections to the banks you initiate payments from, you can consolidate banking services. In many cases, pushing a higher payment volume through one banking channel can improve pricing per transaction as well. Bank fee analysis is a must-have for many reasons; in this case it is necessary to understand your current costs so you can specify cost reductions.
3. Centralize connectivity to banks. For regions that commonly centralize connectivity to banks from a single system (e.g., Europe), it is most often the treasury management system (TMS) that acts as the interface to the bank. Whether payments are initiated within Kyriba’s multibank treasury portal or within an ERP or A/P system, Kyriba is responsible for all the connectivity and the formats banks require to complete the funds transfer workflow. Kyriba links directly to domestic and global banks, and also has integrated SWIFT connectivity within our solution.
4. Standardize internal workflows. Once you’ve established where payments are going, how they integrate between your treasury platform and your ERP system, and if you want to be involved with what technology is used to send payments, it is important to determine how you want to structure your payment workflows. Key considerations include:
- Who is involved in the initiation, approval and release of payments?
- What levels of access and duties do you wish to define?
- What is the payment approval matrix going to look like?
- What sort of limits do you want to employ?
- How do you want to design reporting or alerts so the right people see the information they need?
Kyriba can help in each area. Our services team includes treasury professionals who can help you implement best practices so that the right decisions are made.
5. Consolidate information in a single web portal. Centralizing payment workflows, including your payment controls, is significantly easier when you have one system of record. For most organizations, this system should be cloud-based with no required software other than a browser. This removes IT constraints from the equation and makes it easy to onboard users that aren’t part of the treasury team. Kyriba’s cloud-based payments hub is 100% SaaS, providing cloud-based disaster recovery, business continuity, automated updates, data redundancy, and multi-time zone system availability.
Time to Streamline Your Payments Process
The benefits of implementing a cloud-based payments hub are undeniable. When implemented correctly, a payments hub can help streamline an organization’s banking relationships, as well as drive down the fees paid to banking partners. In addition to the operational benefits, a cloud-based payments hub is also a huge asset when it comes to improving compliance, increasing visibility and standardizing payments processes.
However, in order for a payment factory to be successfully rolled out, treasury teams need to manage the process thoroughly. Internal and external resources must be optimized, and technology and workflow processes need to be carefully established. Once these are in place, the benefits can be immediate and long-lasting.
Want to know more about cloud-based payments hubs in action? Check out this on-demand webinar on Bray International’s path from spreadsheet chaos to a true global payment factory.