Welcome to the latest episode of Bramasol’s Insights to Action Podcast Series. In this episode, listen How Payment Factory can Improve Your Cash Flow, Increase Productivity and Reduce Risk.

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Also, below is a transcript of the podcast episode:

Jim Hunt: Hello, this is Jim Hunt for Bramasol’s Insights to Action podcast series. Today we’re going to talk about payment factory and we’re really lucky to have Kim Dowling, the Director of Treasury for Bramasol, where she leads the treasury practice. Kim’s a functional expert in treasury and global capital markets and she understands both SAP and non SAP systems. Kim’s got over 25 years experience working within the corporate treasury and global capital markets. She has expertise across finance, operations, regulatory compliance, mergers and acquisitions and leading treasury and cash management project implementations. With that broad base of experience across multiple industries and topics, combined with her deep knowledge of treasury systems and business requirements, she’s got a really unique perspective on the design and implementation of SAP treasury and cash management solutions. So welcome Kim. It’s good to have you here.

Kim Dowling: Hi Jim. Thank you for having me here today.

Jim Hunt: It’s going to be a pleasure and I’m sure our listeners will learn a lot about payment factory and how it applies to them. So the first question is why should they care about payment factory?

Kim Dowling: Well I’m glad you asked that because one of the reasons why we want to talk about this today is that in order for your business be successful, it’s really critical to know where your cash is. You need to know how much cash you have, where is it? If you think about it, if you don’t have control of your cash, you don’t know if you’re being paid by your customers, you can’t pay your bills, you can’t fund your business properly. You also could be losing out on investment opportunities because you can’t get get there fast enough and you don’t know where your cash is. And if you don’t know where your cash is, you’re at risk of losing it. So really improving payments and cash management is a constant challenge for organizations and it does get more complicated as we grow globally. I want to get a little bit more detailed a bit later in our conversation, but when I think about this, the better you handle your cash, the more successful your business will be.To me cash is King. It really is. If you’re effective and you’re efficient, you secure your cash management that is critical for your business to be successful. That’s really what a payment factory is going to do for you.

Jim Hunt: I think we can all agree on that. That’s a great answer. So, so what is a payment factory?

Kim Dowling: Well, I’m glad you asked that because whenever anybody asks,what is a payment factory, you’re going to get different answers because everyone’s looks at a payment factory differently in the way they may implement it to fit their needs. So payment factories process all the payments incoming and outgoing, including your treasury payments, your vendor payments, your customer payments, your direct debits, your checks, all within the payment factory. It’s a centralized set of cash management processes that are standardized and automated across your organization. It also combines a shared services and in-house bank. So together this is what creates your payment factory. So you might be also wondering why we use the term payment factory because it’s really not intuitive. But if you think about a factory, there’s a central location where the operations are performed in a standardized and automated fashion, then you can start to make sense of the word payment factory. Because it really makes it easier for companies to increase their efficiencies and gain better visibility into their cash positions – because we’re centralizing that information. We’re streamlining the standards for payments across the enterprise for all the different payment types and also for the different banks that we might be using. So this significant process improvement can be achieved by combining these operational capabilities.

Jim Hunt: So just like a factory, you have the opportunity as you centralize to gain benefits of scale and of automation, from being able to have everything done in one place. So it is analogous to a real factory. You mentioned shared services. How does the shared services model fit into enabling payment factory?

Kim Dowling: Right. Well shared services is one of the service models, which is part of the payment factory. So when you’re taking an operating model, you’re using shared services to consolidate and deliver the services across your multiple divisions or your business units, as you’re trying to do this efficiently and effectively. It helps you standardize your processes and also removes that work from some of the individual areas and it provides a value through reducing your costs and improving your services. Some types of common shared services that folks may have seen would be like record and report activities. They could be also for accounts payable, operations, accounts receivable and also of course treasury services because treasury services has its share of payments as well, related to investment activities and so forth.

Jim Hunt: What about the term in-house bank? We hear that used in relation to payment factory?

Kim Dowling: Yeah, where we have our shared services and our in-house bank together we’ll make our payment factories. So The in-house bank piece of it is the internal part of the organization that acts as the common bank for the parent and individual subsidiaries. It’s really using like virtual bank accounts to execute the third party internal payments on behalf of each entity. So when you’re bringing the shared services together with the payment factories, you’re going to be able to significantly streamline these business processes related to all your global payments, your cash management, and you’re going to be able to deliver numerous benefits to your organization. And in the end of the day, you’re actually drastically reducing the number of your bank accounts. And as example, if I look at this, you can actually serve many subsidiaries by doing this and you’re going to be able to bring a significantly amount of reduced transaction costs, and foreign exchange fees, because the transactions are really treated as domestic rather than foreign, when you’re talking about your foreign payments. And this is also done with a straight through accounting and settlement processing.

Jim Hunt: And from the perspective of the business units or subsidiaries, it looks to them like they’re using actual bank accounts even though it’s a virtual bank account in the in-house bank.

Kim Dowling: Exactly.

Jim Hunt: So now to automation. We talked about automation being one of the opportunities for efficiency within payment factory. How does automation play into it?

Kim Dowling: Sure. When you’re actually looking at, you know, a lot of companies, when you’re doing this payment factory in house cash type philosophy, you’re actually dealing with high volumes of transactions, usually in multiple entities and different tax treatments and so forth. So the automation of the payment factory will actually also support your global payments, your remittance standards, you can also consolidate your inquiry messaging. It ensures reporting controls will be enabled for the management of your payment’s life cycle, which is the initiation through the payment all the way down through the reconciliation. And you know, in essence you’re meeting your whole focus on cash management, your audit and compliance, and you’re able to quickly react to your business conditions to achieve that future growth that you’re looking for.

Jim Hunt: And I assume that the SAP infrastructure makes it easier to do that automation along with the shared services model to achieve all of this integration we’re talking about?

Kim Dowling: Exactly, because it’s going to give you all the improved straight through processing from the beginning until the end, using the banking solutions like such as multi-bank connectivity, which also removes a lot of your risks and errors and you’re going to have that secure integration for ERP and your banks and then you’re going to have that real time global visibility of all your cash flow. When you strengthen your internal controls, you have your fully integrated payments platform, you standardize your approval process and workflows, which also helps you with that separation of duties with your approvals, and consistency within your payments. And again, you’re also eliminating any kind of poor data quality and unreliability in your cash visibility because now you have that real time visibility by elimination of the disparate and manual processes that you may have had before.

Jim Hunt: So, that’s an excellent description of what payment factory is and how the pieces fit together, as well as who can benefit from it. Now, if I’m a CFO, what are the indicators in my company profile that tell me payment factory would be useful to me?

Kim Dowling: Yes. You know, as businesses become more, more complex, their cash management will also become more critical and difficult. So if you’re looking at different companies, you may say, do you have international markets? Do you have multiple currencies? Do you have multiple sites and processes? Do you have varying financial compliance requirements? You know, are you, are you dealing with manual processes or are you using multiple bank partners and accounts? Or in a lot of cases I’m finding where folks do not have standard bank connections, they’re doing it through their banking portals. Or they may say, you know, we were really having issues. We don’t know how the visibility of our cash or in some cases their concerns are on fraud and risk of their payments because they don’t have these standard processes and internal controls. Because as our operations are getting more diverse and we’re dealing with all kinds of changing compliance requirements and you know, of course we’re always dealing with escalations and our financial risk, you know, or international trade or we’re very geographically diverse. This is something that companies are looking at more closely to see if it makes sense for them.

Jim Hunt: Yeah, and I assume that there’s a compliance benefit. You touched on that a little bit, but with all the, the international regulatory changes, it seems like centralization in a payment factory would give a company a better handle on managing those compliance and risk factors because they’ve got everything all in one place.

Kim Dowling: It does.

Jim Hunt: Excellent. So, let’s say we want to implement payment factory in our company. What are the keys to success? What are the steps? How do we go about that implementation?

Kim Dowling: Sure. There’s a couple of different steps, when I look at payment factories and putting this into place that I think are very critical, and that should be taken into consideration before you embark on this journey. Because payment factories really do offer many powerful benefits and you really must be really clear on the scope in all the major considerations to ensure that you have a successful implementation for your payment factory. It’s not just about gaining flexibility. You really have your flexible workflows based on your user groups and approval up or your approval levels. But I really think it’s important to make sure that first you have secure controls and standardized processes to ensure that your internal controls are implemented properly and you have your separation of duties. You can also have that visibility from end to end and you have flexible approval workflows.

Kim Dowling: Second, I think is important to make sure that you’re streamlining your payments so you have localized payment types and benefit from that flexibility. And you’re also getting that low cost from rounding your payments and centralizing that. Multi-bank connectivity I think is key. SAP offers multi-bank connectivity through the Swift network. You can do bank to bank of course as well, but then you have the increase of maintaining those interfaces. So I do always suggest multi-bank connectivity to take a look at if that make sense for you because it is a very core to payment factory initiatives through SAP. Also, I think prevention of fraud or financial crime, real time alerting and investigations is what you’re going to get out of that with the SAP straight through processing. In essence you’re going to have that closed loop automation and centralization of your payments with full cash visibility, so that gives you that control of the fraud and financial crimes that you may be concerned about. Automation, reconciliation and transparency is another item that I think needs to be considered because if your system identifies your transactions and you can’t automatically be matched to a streamlined requirement or an investigation, you’re going to run into issues so it really make sure you have that automation, your reconciliation, transparency,

Kim Dowling: And then lastly is your banking strategy. If you have that increased security and you have your fewer banking connections, you’re going to have those approved technical requirements for the exact payment file formats.

Jim Hunt: That’s an excellent overview. You know, we have a couple of minutes and I know that in a recent webinar on this topic, which we’ll link on the website to this podcast so that people can go deeper if they need to, but I know you talked a bit about what payment factory is and is not and some of the myths surrounding it. So maybe that would be a good place to wrap up to, to kind of summarize what payment factory isn’t. I think we’ve done a really good job of describing what it is.

Kim Dowling: Yes. So you know, a payment factory, it doesn’t eliminate your need to test the internal external controls. It’s actually helping increase and make better your internal and external controls. So you’re still going to have to do that, but now you have the ability to be more compliant with your audit controls and your Sox requirements. It’s also not intended to perform the treasury related activities for investments and hedging. Those will still continue. The payment factories are for your payments and your receivables, but separately you’re still going to be always having your treasury related activities that will continue within your treasury management system.

Jim Hunt: So what payment factory really gives is a consolidation, a reduction of risk, reduction of costs, and better productivity. It still gives the same interfaces to subsidiaries that they need, but it gives the overall enterprise a much better handle on cash and cash management.

Kim Dowling: Exactly. And one of the items that you just asked me iswhat are some of the payment factory myths that I have heard? This is one that is a little bit near and dear to my heart, because I hear it all the time when I talk to different customers and I’ve also heard it in industry: So I hear that it’s “resource intensive.” “It takes so many people to put those in place. It’s very difficult. And then it’s time consuming.” You know, when you think about is it resource intensive, the answer is No. Because when you bring in the right company that actually listens to how your company is organized, they’re going to go in and actually do an assessment, then put that whole process in for you from end to end and set it up properly for you. So you don’t really need a lot of internal resources to do it. And the fact is, once they have put in a straight through processing, all of the flows in the accounting are fully automated straight through your ledger.

Jim Hunt: So the benefits are achieved fairly quickly and then accumulate over time.

Kim Dowling: And you’ll often hear, “Oh, it’s so disruptive in the implementation.” It’s not disruptive. You can continue with your current processes as you’re going and then as you’re building in the processes, you can layer it in a phased approach to start. So if you wanted to do Latin America first and continue other processes as they are, as you slowly use an agile approach to phase it in; then stop your current processes and start laying in the new processes within the straight through processing of your in house banking. And then you can layer in the next region of the world and the next region after that. It’s very, very clean and hands-free with the proper testing and training.

Kim Dowling: I’ve also heard that it’s very inflexible, which is definitely not true. Every company is different. You’re going to be setting up the processes that make sense for that company. Some companies are very global, some companies are domestic, some have a lot of foreign currencies, some do not. So, It depends on the size and complexity of each company with their intercompany payments, the third party payments as well as their receivables. You have to look at how that company’s organized, where the regulations are, for dealing with payment factories. You can’t always use payment factories in some of the areas of the world because of the legal regulations that prohibit you from doing so. You have to make sure that you’re looking at each company holistically, what makes sense for them. In other cases, I’ve heard so expensive, and I say what’s expensive? We just eliminated a majority of your banks and gave you the ability to use a header bank to make the payments on behalf of the others using the virtual accounts. So in essence, we just reduced a lot of, or a majority of, your bank accounts and all the fees that you’re getting from those different banks. So in essence it ends up paying for itself in the end of the day when you’re actually implemented properly.

Jim Hunt: Great review and wrap up. I really appreciate it, Kim. I think our listeners are going to learn a heck of a lot from this session and I appreciate your time. I look forward to future interviews on other treasury topics.

Kim Dowling: Thank you, Jim. It was my pleasure.

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