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What is a Payments Hub – and Why Do I Need One?

According to a recent WEX Worldwide survey commented on by Treasury Today – 52 percent of organizations admit to being victims of payments fraud. Many times treasury is directly affected, because their payments were compromised, while other times, the treasurer is pulled into the conversation to fix whatever vulnerability was exploited for someone else’s payment. Regardless of how or why, treasury is being asked to provide better payments solutions by the CFO, CIO and CISO. Payment hubs provide that answer, in that they offer the global visibility and standardized controls that are so necessary to ensure that every payment is handled in a consistent manner regardless of geography, payment type or who requested it. Payment hubs, which were the subject of a new e-book, ensure payment workflows comply with the organization’s payment policy. Additional reading: 15 Minute Guide to Payment Hubs This is why CIOs are demanding that payment hubs (depicted below) be implemented and are often asking treasury to take charge. What a payments hub should look like – Here’s a graphical representation of a payments hub, including external inputs, key functions, payment types, connectivity and more.  When treasury does lead the initiative for a payment hub, they found the following benefits: Standardization The key to eliminating unauthorized payments – even if accidental in nature – is to ensure a standardized set of controls that prevail without exception. Controls could include payment approval scenarios, extra layers of authentication, procedures if approvers are remote and/or unavailable, and specific actions if modifications to the payment are required. The organization’s payment policy should be digitized and enforced by the payment hub software to ensure these controls are consistently applied. Payment Screening Many organizations require payments to be screened against sanctions lists prior to sending those instructions to the bank. While this is a good practice, screening should not stop there. Payment scenarios – e.g. payments being made outside of approved countries, first payment to a new bank account, irregular payment amounts, etc. – should also be screened in real-time so that any suspicious payments can be stopped and quarantined in real-time to be reviewed by authorized reviewers. As payments continue to diversify across multiple channels (e.g. wires, ACH, checks, B2P, blockchain) and become more real-time, organizations cannot rely on treasury staff scanning every payment in real-time; nor can they expect their banks to be the last line of defense. More sophisticated solutions including robotic process automation, should be leveraged to provide the best possible protection. Fortunately, such solutions are available within most payment hubs. Visibility Many treasury teams struggle with having complete transparency into all outgoing payments before they happen. This issue magnifies as organizations also adopt new request for payment strategies to improve collections. Treasury isn’t learning about payment activity early enough to make effective cash and working capital decisions. Payment hubs, through the consolidation of all payment activity, can provide that visibility to treasury so they can be certain about what payments need to be funded. With this added level of precision, working capital can be reduced and a greater percentage of total cash reserves can be deployed to meet organizational KPIs. In many cases, this may directly affect the CFO and Treasurer’s bonus attainment. Cost Not lost in the myriad of benefits is the fact that payment hubs reduce the cost of managing payments. There are several different ways:
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3 Keys for Treasury Success in Asia

Recently, I had the pleasure of learning more about corporate treasury in Asia during visits to our local offices; meetings with clients in Hong Kong, Malaysia, and Singapore; and by attending several treasury conferences. It should be no surprise that corporate treasury is becoming more sophisticated across Asia as firms continue to demand “best of the best” best practices and scalable, easy to use technology. What I found most interesting about treasury in Asia was: Chinese firms are poised to expand internationally – From a treasury perspective, this interest in growing beyond China has heightened interest in treasury technology that delivers onshore/offshore visibility into cash and currency exposures alongside the need to establish more complex treasury structures such as cash pooling to support onshore/offshore sweeps. Chinese firms are continuing to explore establishing regional treasury centers in Hong Kong or Singapore to align with RMB clearing locations. This is an opportunity where treasury best practices are seen as a significant asset by hiring firms. Automation is not the only goal of treasury technology – Asian-based companies are embracing financial and treasury technology, yet are building ROI models and business justification on variables other than just automation and productivity. With costs of FTEs often much lower than we see in Europe or North America, automation is not the solution to increased workloads. As a result, the driver for technology is implementation of best practices, decision optimization (e.g. improved hedging), and support for treasury transformation. Regional treasury centers are becoming more involved in strategic decision making – Organizations that embrace the opportunity to allow Asian treasury teams to manage key functions (e.g. developing pooling structures or designing hedging programs) are able to deliver more strategic value and drive greater bottom line value than those that try to manage all treasury functions from afar. The knowledge and experience being hired into regional treasury centers, especially in Singapore and Hong Kong, rivals and even exceeds treasury talent in other parts of the world. This expertise is obviously in addition to local knowledge and the ability to work face to face with offshore internal and external partners to treasury. Additional reading: Overcoming Cash Forecastng Challenges: Best Practice Tips for Treasurers Treasury organizations that are already well established in the region already know where the right locations are; how to secure experienced staff; and the importance of adopting world-class treasury technology to ensure global visibility over cash, exposures and financial controls. For organizations considering a greater investment in Asia, it is important to: Choose locations that can offer support in English and local languages, with workable time zones that can also overlap with the head office at some point during the day. Locations that have financial proximity to China (e.g. Hong Kong, Singapore, Macau) are critical so your offshore treasury center is a financial gateway into China itself. Secure experienced staff who not only have global treasury experience, but know how to balance this with local expertise. The right people need to be motivated and trained well, earning new opportunities to leverage their growing treasury knowledge Have the right treasury technology in place that supports global requirements, but also local needs (which could be preferred language, local regulations, specific payment or bank account controls, or dashboards that highlight local treasury KPIs). The reduced footprint offered by the cloud helps, as does the ability for a cloud TMS to enable all treasury offices to support each other to deliver a complete business continuity plan. Asia is an opportunity and those treasury teams that embrace it will be on the road to global treasury success.
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How to Speed Up Free Cash Flow in a Sluggish Economy

Organizations large and small are impacted by what has been reported as a sluggish global economy, and for many industries this deceleration in growth has investors concerned about their rate of expansion. The combination of weak to moderate growth and demanding investors raises the immediate need for action by global leaders, and puts supply chain at the forefront of the conversation. When demand for products goes down, and working capital is tied up in inventory, investors know they can expect a lower rate of return. What do companies do to maintain stable growth and mitigate potential investor aggravation or worse their lack of confidence? In this scenario, the supply chain is among the first to be tested, adjusted and possibly disrupted for the better or worse of the company. Savvy finance leaders are looking to manage these seasonal and market driven fluctuations with supply chain finance (SCF) programs, and are seeking the right information to set up and implement SCF to help stabilize their operations.  Where there is a question of free cash flow (or the absence of cash), there will be a CFO and treasury group developing a way to optimize working capital. In my last blog, I mentioned one of three pitfalls to a successful supply chain financing initiative is the misalignment of corporate goals and individual incentives. The key challenge here is getting the right people at the table to align goals and teams. Without that cross-departmental commitment and participation, the potential bottom line impact from a supply chain finance program will remain an unrealized opportunity. Additional reading: Making the business case for supply chain finance So, who are the mandatory participants required to successfully launch a supply chain finance program and what is their role? Both the CFO and Treasurer should be the strategic champions of a SCF initiative, as they are mandated to nurture and protect the lifeblood of the organization, its cash position: either by reducing excess cash in exchange of greater yield; or creating free cash flow by extending DPO. It should be obvious that the CEO’s stamp of legitimacy demonstrates the level of priority a SCF initiative has within the organization as a whole. While strategic leadership at the top is a common goal, it’s not one that is easily attainable unless treasury and procurement are working together to build a business case that supports the initiative. The Chief Procurement Officer should play an active part both on internal and external matters. Internally, the CPO should guarantee that the procurement organization’s compensation plan is aligned with the working capital increase objectives and stress the importance of this initiative to his teams. The incentives should be different if the company engages in a Dynamic Discounting exercise or in an extension of DPO. Externally, when possible, the CPO should be involved in the discussions with the most strategic suppliers, and in so doing, set the tone for negotiations through the procurement team. Another department which will be directly impacted by the implementation of a Supply Chain Finance program is the Accounts Payables department. The use of an external platform will have consequences on existing processes - simplifying some, forbidding others and in general forcing a greater rigor on the approval and payment processes as a whole. The AP team will also need to be tactically involved during the functional and testing workshops to ensure the company ERP system and the SCF payment platform are well integrated. As a consequence, it is crucial for the AP Director to be involved early in the process, as the SCF initiative will have a non-negligible impact on its team – namely in terms of time. Finally, as for any technical related activities, the Director needs to be consulted to secure the needed technical resources as well as avoid running into a schedule freeze period, that would result in delaying the whole implementation. It is sometimes difficult to ensure all the above mentioned leaders are actively involved in the SCF initiative. Here are two reasons why the C-level should feel involved in an SCF initiative:
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The Benefits of a Multi-Bank Working Capital Solution

Companies used to offer working capital or (supply chain finance) programs to their suppliers primarily in conjunction with a single bank. That was great for the bank, of course, because it allowed the bank to set the terms of the working capital program, to tie the company into a close, long-term relationship, and to gain maximum benefit from lending money to the company’s suppliers while only taking on the credit risk associated with the company itself. The company in question would, of course, usually be a multinational, large or mid-market business with a good credit rating. Banks’ historic involvement with working capital means that even today – when there are numerous bank-agnostic solutions available on the market – many corporates talk to their bank about their working capital requirements first of all and might even end up being sold a solution without properly exploring other options. The risk with this approach is that the bank’s solution may not actually be the best overall solution for the corporate, taking into account factors such as credit availability, fees, funding costs and onboarding requirements, and also whether the organization has any specific needs, such as wanting to provide finance to suppliers in a country where the bank has no presence. Related reading: How to Increase Financial Performance with Working Capital Programs Related reading: How Working Capital Solutions Can Accelerate Free Cash Flow – and Boost Your Capital Investment by 48 Percent Related reading: Busting Payable Finance Myths in the Digital Age Furthermore, when a corporate sets up a working capital program with a single bank, it is effectively giving a large amount of business to the bank, which will certainly put it in that bank’s good books, but could be harmful to its relationships with other banks and increase its exposure to counterparty risk. Since there is a lot of effort involved with setting up a working capital platform initially, it can be difficult for a company to move to another solution if the bank’s service standards slip, it increases interest rates for suppliers at a steep rate, or it allows the technology underpinning the platform to become antiquated. Another consideration is that a bank’s working capital platform will not necessarily integrate with the company’s forecasting and payments solutions, leading to duplication of effort when it comes to reporting and tracking transactions. Meanwhile, the invoices that will be financed under the working capital program will be stored in the company’s enterprise resource planning systems, not its platform, which reduces the efficiency of the payments process. Finally, when onboarding suppliers to its working capital platform, the company will inevitably have to follow the bank’s procedures, which are likely to be more onerous than its own procedures would be. When a company is weighing up whether to use a bank-hosted program or to invest in its own platform, it should take the following selection criteria into account:
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