As global treasurers continue to take control of global payment processes, including payment factories and payment-on-behalf-of structures, the need for pre-notification against sanctions lists, such as OFAC in the United States, is becoming a must-have requirement within treasury technology.
Additional reading: The business case for a payment hub
For many treasury and payables teams, it has been sufficient to rely on banks to identify payments that may run afoul of sanction lists, domestically or internationally. Yet, leaving it to banks to determine if a payment should be halted effectively locks up that cash for any number of days while investigations and documentation are completed. For legitimate payments, this delay causes many issues for treasury as the beneficiary is still waiting for funds to be received. When that recipient is a strategic supplier or a contractor working on a key project, the payment delay means that business is literally on hold until the payment can be cleared.
The old way of managing this issue was simply to send payments early – in some cases, really early. While this workaround may ensure that payments are remitted by the necessary date, it has a negative effect on working capital by shortening days payable outstanding (DPO).
Additional reading: Leveraging an effective working capital strategy to reduce the cash conversion cycle
The more efficient method is to integrate payment screening against industry watchlists into your treasury and payments technology, enabling pre-notification of potential issues. Whether payments are remitted via a Treasury Management Solution (TMS) or Enterprise Resource Planning (ERP) – the ability to screen payments against the same sanctions lists that banks rely upon provides early reporting of potential compliance issues and notification that payments will be held by the banks for further investigation. Knowing which payments are affected allows treasury to begin preparing documentation before banks ask for it, reducing time spent to investigate and clear flagged payments, and therefore reducing the time that cash is held up at the bank.
For treasurers looking for ways to unlock trapped cash and improve working capital, integrating watchlist filtering into their TMS is a great place to start.