The payment processes in corporations
and internationally active companies
are more complex than you might
think at first glance – and they are
unclear and non-transparent virtually
everywhere. This complexity results
from the branched company structure
and the consequent variety of banking
arrangements maintained at central
HQ and out in the branch offices and
subsidiaries. Various currencies, formats
G R E AT E R T R A N S PA R E N C Y, R E D U C E D R I S K S –
A N D O N E M I L L I O N E U R O S AV I N G S P E R Y E A R
5 POINTS TO CONSIDER WHEN
CHOOSING YOUR
PAYMENT SYSTEM
and security keys present an obstacle to
unitary, standardised payment processes
and a uniform view of bank transactions.
Intelligent cloud-based payment systems
can remedy this situation: they improve
the transparency of payment processes,
reduce costs and risks and form the basis
of better company decision-making. In the
typical scenario of an internationally active
company, they easily contribute annual
savings of one million euros.
COMPANY PAYMENT
TRANSACTIONS
1
HIGH RISKS AND COSTS –
LACK OF CLARITY AND TRANSPARENCY
Not only large corporations, but also internationally active medium-sized companies, wrap their banking arrangements in a complex mesh of relationships. The reason being that, in addition to the company headquar-ters, each subsidiary and branch office typically manages its own set of banking arrangements. These are some-times strategically planned but also they are often just a historical legacy. A banking landscape thus emerges that is characterised by an array of various e-banking tools as well as bank and country-specific payment formats. Moreover, large corporations and
internationally active firms normally use diverse sourced systems such as ERP, treasury and HR systems, which generate payment files for the vari-ous bank accounts in a variety of for-mats.
The fact that a heterogeneous, barely understandable structure emerges, almost from necessity, is however not the result of bad organ-isation or the fault of the CFO. Fun-damentally, this heterogeneous structure is instead intentional and meets the objectives of the company management: it results from the
sim-ple necessity to arrange payment processes within the corporation as flexibly as possible, so that the subsidiar-ies and branch offices can exercise an appropriate degree of freedom over the execution of their financial transac-tions. This relieves HQ from the burden of executing tasks that can be dealt with more sensibly and efficiently in each location – a situation which is obviously most rele-vant to foreign subsidiaries and branches, where foreign currencies and different statutory regulations come into play.
Payment processes are therefore confusing and non-transparent in many corporations and large compa-nies; supplier, salary and treasury payments are ineffi-cient and slow. A central view – with regard to current liquidity, the sum of payments made to individual sup-pliers, the overview of balances for individual areas of
the company or product groups – requires a lot of effort, because all of the relevant bank accounts of the subsid-iaries and branches and their payment flows are involved and must be consolidated more or less manually.
NON-TRANSPARENT BANKING FEES, HIGH IT AND PROCESS COSTS
The same applies when it comes to getting an overview of the banking charges incurred. Here too, a summary of the costs arising from financial transactions is only possi-ble by manual means and with the input of a lot of time and effort. Even more difficult is a comparison between the costs of individual banks – i.e. which financial institu-tion imposes which charges for which items: the various institutions often not only have different designations and terminology for transaction items but also account
according to different pricing models. It is not rare that they combine a basic rate with a certain number of free items or pricing scales, which makes a comparison almost impossi-ble.
Manual processes in transaction pay-ments, and when consolidating data, are moreover especially expensive, error-prone and highly dependent on a few employees. The reason is that this involves manually transferring a wide range of payment files in various banking formats from multiple source systems into banking tools and then sending them from here to the banks. A similar process follows in the reverse direction for bank statements. On top of this, high IT costs are incurred as the payment formats have to be configured in the ERP systems.
A considerable potential for savings is present in bank charges as well as in the manual, non-standardised pay-ment transaction processes – one which can easily add up to one million euros in an internationally active com-pany with a typical number of banking relationships and accounts (see model calculation on page 7).
INEFFECTIVE LIQUIDITY RISK MANAGEMENT Without comprehensive transparency and full control over global payment flows and cash reserves, effective liquidity (risk) management is impossible. Important tools
Despite the deployment
of modern and intelligent
software solutions,
payment processes
remain confusing and
non-transparent in many
corporations and large
enterprises.
for the measurement, monitoring and active manage-ment of liquidity risks are absent. For the most part local cash outflows in the subsidiaries run via stand-alone e-banking tools, which impede effective liquidity risk management. This situation is not only unsatisfactory, but also in many respects problematic: firstly there are no clear evaluation and analysis options and secondly there is a lack of information about current liquidity. So much time has often passed before the required informa-tion has been pulled together, that the original data and liquidity positions have in the mean time changed. If, for example, a bank were to get into difficulties, the CFO or the treasury department would need to be able to block all payments via this bank. This becomes difficult above all if different ERP systems in the company com-municate with different banks using a multiplicity of e-banking tools and there is a lack of both transparency with regard to cash flows and also the technical
ability to access the stand-alone e-banking tools that are being used to execute processeses locally. A further example: employees in the subsidiaries can pay out large amounts via e-banking tools, without this being subject to monitoring or being managed via an HQ-based second signatory.
WITHOUT CENTRAL CONTROL LEGAL RISKS ARISE In addition, the decentralised organisation harbours sig-nificant legal and regulatory compliance risks: thus many companies cannot provide reliable information about how many company accounts they have in all of their branches and subsidiaries, still less about who has signing authorisation for which accounts or which employee can authorise payments for which amounts. A lot of
time-consuming manual research is often required in consequence in order to ascertain the facts. Since a cen-tral view over the payment processes is missing, both the signatories and the authorisations can only be controlled with difficulty and it is all the more difficult to take a strategic approach in planning them. Last but not least, this gives rise to a significant risk for manipulation and fraudulent activity.
PAYMENT TRANSACTIONS IN COMPANIES – THE PAIN POINTS
• Lack of visibility over cash positions and liquidity, and therefore no efficient liquidity risk management • No transparent view of bank relationships and activities
• No comprehensive overview of electronic signing authorisations
• Vulnerability to fraudulent activity as a result of manual user administration; in some cases dual control principle not applied
• Compliance standards (SEPA, etc.) and changing regula-tory requirements can only be met with considerable effort
• Cost-intensive payment processes result from technical hurdles to integration and centralisation
THE SOLUTION
2
STANDARDISATION AND AUTOMATION
OF PAYMENT PROCESSES ON AN
ENTER-PRISE-WIDE UNITARY PLATFORM
How do you untangle the intertwined banking relation-ships in the company HQ, subsidiaries and branches? The basic concept behind a comprehensive payments solu-tion relies on automating all payment processes and bringing them together in a standardised form in a uni-tary enterprise-wide system for management, oversight and evaluation. This primarily involves converting the complex n:m network (m ERP/HR/treasury systems and n banking relationships) into a 1:1 relationship (in which each bank and each source system is linked just once with the payment platform).
It should be pointed out however that this does not necessarily mean moving the execution of financial trans-actions, or responsibility for them, from the subsidiaries to headquarters. On the contrary – a central solution must be conceptually structured in such a way that the financial autonomy of the subsidiaries is retained, but the execution is simplified via the platform, which can be accessed both by the corporate management and by the decentralised locations via automated and standardised processes.
This allows on the one hand a high level of transparency, since all payment procedures within the company can be monitored and controlled centrally. On the other hand such a system makes analytical functions available, which include all payment procedures within the enterprise and reach far beyond the possibilities as they previously existed – almost at the push of a button, without
error-prone manual effort. This not only enables views of cur-rent cash positions and cash flows – in real time – but also evaluations of balances with individual creditors and debtors for specific timeframes, locally, regionally or worldwide. At the same time an overview of all of the bank charges being incurred is finally possible. With this the foundations are laid for the CFO and other decision- makers to take better decisions based on a greater level of transparency. Moreover, controllers can optimise monetary transactions; experts estimate the savings potential accruing from monetary transaction costs alone at five to 15 per cent.
EFFECTIVE LIQUIDITY RISK MANAGEMENT A unitary platform delivers comprehensive transparency and full control over global payment flows and cash reserves. It thus makes effective liquidity (risk) manage-ment possible. Local cash outflows from the subsidiaries run over this unitary platform. If, for example, a bank runs into difficulties, all payments via this bank can be blocked by the CFO or the treasury department by deactivating the bank connector is deactivated on the platform. A limit and work flow system enables the effective control and management of employees in subsidiaries with regard to larger value payments, for instance through an obligatory second signature.
ENHANCED LEGAL SECURITY – REDUCED RISK OF FRAUD
Better access possibilities also arise with regard to identity management: a central solution enables the efficient administration and control of authorised signatories and account managers – to the benefit of greater legal security and a reduced risk of fraud – and not least makes the adherence to compliance regulations easier, since unitary processes and work flows are defined at the central loca-tion and do not have to be individually executed a hundred times all accounts.
However, this is not just about transparency as well as legal and compliance considerations: a central solution reduces the maintenance for the entire payment transaction process enormously and leads directly to cost reductions. Until now each individual branch or subsidiary had to set up and maintain its own interfaces to the various finance institutes with different payment and data exchange formats – almost always involving elaborate authorisation procedures and often considerable time and effort for the IT department.
With a central payment system these tasks must only be performed once, instead of at every subsidiary or branch. As a central administration and process tool, it makes all of these functions for executing payments available and increases the efficiency, transparency and security of all
OLD WORLD
Multiple corporate entities, geographically dispersed…
…each of which run several ERP systems in parallel;
Various tools and workarounds in use to extract, convert and…
…submit payment data to banks in their required data formats. ERP SYSTEM ERP SYSTEM ERP SYSTEM HR/TREASURY/LEGACY
SUBSIDIARIES SHARED SERVICE
CENTERS HEAD OFFICE
External
Bank ExternalBank ExternalBank ExternalBank ExternalBank
TREASURY SYSTEMS IN-HOUSE PROJECTS + SERVICE BUREAUS E-BANKING TOOLS
NEW WORLD
Single Point of Contact
Host-to-host connection, EBICS, SWIFT
ERP SYSTEM ERP SYSTEM ERP SYSTEM HR/TREASURY/LEGACY
SUBSIDIARIES SHARED SERVICE
CENTERS HEAD OFFICE
External
Bank ExternalBank ExternalBank ExternalBank ExternalBank
payment procedures. This relieves the burden on in-house IT departments and releases their capacity for the actual core business of the company.
ENTERPRISE-WIDE UNITARY PLATFORMS FOR PAYMENT PROCESSING AND FINANCIAL TRANSACTIONS
• Effective liquidity risk management
• Real-time overview of cash positions and cash flows • Considerable improvement in efficiency
• Increased transparency and control
• Significant time and cost savings (on bank charges and internal IT resources)
• Clear, homogenous processes and efficient, user-friendly work flows
• Faster, simpler global access to all bank account details worldwide
• Minimised risk and improved compliance • Better control and administration of payment authorisations and limits
• Detailed analysis and evaluation mechanisms (from overview dashboards to the level of individual debtors and creditors, regions and timeframes)
HIGH LEVEL OF SECURITY AND
AVAILABILITY
3
WITH A PAYMENT PLATFORM VIA SAAS
The advantages of a cloud solution are obvious: as a cen-tralised system, which is above all conceived for geo-graphically distributed users, it lends itself to being set up in such a way that it can be used worldwide without special client software while requiring the absolute mini-mum of effort for maintenance and implementation. In addition, the platform should be scalable at the user’s discretion and charged for on a pay-per-use basis. This means that changes in the company structure – for exam-ple with the closure or addition of branches or as a result of mergers and acquisitions – are integrated smoothly and rapidly into the finance platform with foreseeable costs.
A cloud-based SaaS model fulfils all of the above-men- tioned requirements and therefore offers the optimum solution. However, the precondition for this is that the
operator of the cloud platform has many years of experi-ence and, moreover, offers the highest possible security standards, which it can prove with the relevant certifica-tion. If this is the case, a SaaS system offers a whole host of impressive advantages: the installation costs are much lower than with an on-premises solution, usage is inde-pendent of location worldwide and possible without special client software; there are no expenses for updates nor for the implementation or maintenance of bank inter-faces, because both are fully taken care of by
the operator.
Likewise there are no start-up investments required for hardware and software or for in-house IT resources. On top of this, the implementation does not involve setting in motion a tiresome project; the time for implementation is measured in days rather than the months complex IT pro-jects usually take. New branches can be brought on to the platform at any time with little effort. An ideal additional bonus comes about through the deepest possible integra-tion with one or more HR, accountancy, banking or ERP systems – whether from SAP systems or one of the other providers – ideally a certified plug-in or via certified inter-faces.
HIGH DEMANDS PLACED ON SECURITY AND TRUSTWORTHINESS
To promote focus on core business it makes sense to place responsibility for payment processes in the hands of a specialist. However, with such sensitive matters as pay-ment processing, the security and trustworthiness of the cloud provider must be beyond reproach. This applies as much with regard to the reliability and availability of the software as it does with regard to the security of the data centres. Therefore, finding an ISO 27001-certified SaaS specialist and an ISO-certified data centre in Germany is just as advisable as processing the data according to Ger-man data protection standards.
If these preconditions are fulfilled, a cloud platform offers the optimum solution for executing all payment
procedures efficiently, securely and at low cost in a web-based environment. It bundles together all of the enterprise- critical processes in bank communications – from the management of the most dissimilar payment for-mats and communications channels to banks through to the integration of enterprise applications – in a single multi-bank compatible and audi-compliant system.
COMMUNITY EFFECTS OF A CLOUD PLATFORM With a SaaS-based platform all customers automatically use the latest version of the software. Typically with SaaS appli-cations the development cycle is much shorter than is the case with on-premises software. Thus for example Treasury Intelligence Solutions GmbH, a cloud payment solution provider, works according to the agile development model with so-called sprints lasting eight to 12 weeks. Each new release goes live within this timeframe, and is then imme-diately available to all customers on the platform, without requiring any further adaptation. “We listen carefully to our customers, understand their challenges and implement their ideas in the software", says TIS’ CEO Jörg Wiemer. In this way all customers profit when a customer’s ideas are integrated into the software. “We are thus establishing ‘market best practices’ and meeting the respective require-ments of our customers in the shortest possible time-frame”, the treasury expert affirms. This community effect of the TiS cloud solution is supported by an attractive pricing model: customers pay a fixed service charge per year and profit from all the new functionality, payment processing formats or bank connectors without incurring any supplementary costs.
Thus the cloud platform has significant advantages both in terms of costs and, above all, with regard to the integration of new functions and the further development of the soft-ware. “With an on-premises or an ASP model it often takes years for new ideas to reach customers. Firstly the software provider must develop and offer a new version, and secondly, this new version has to be installed with the customer and tested”, says TIS CEO Wiemer, “the SaaS model is superior here and offers irrefutable advantages.”
SAAS MODEL CLOUD SOLUTION
• Fast and cost-effective implementation
• Simple integration of new company branches and subsidiaries
• Accounted for on a pay-per-use basis • Extremely low maintenance requirement • Scalable to any needs
• Eliminates the need to support and maintain banking interfaces (taken care of by provider)
• No installation of software updates; the system is always up to date
• Fully audit-compliant execution of all payment procedures • Integration of enterprise applications such as HR, ERP, accounting, etc.
• Community effect: best practice
STRATEGIC
EFFECTS
4
A CLOUD PLATFORM FOR PAYMENT
PROCESSES
Apart from in the financial services sector, payment transactions do not belong to a company’s core business. Nonetheless, the transactions must be executed according to the law and compliance requirements. There is no doubt that large companies and their IT departments are capable of handling this task. On the other hand, to do this they must employ considerable human resources in-house or buy in the services of expensive external consultants – and this applies to accounting as well as IT, since an expert in payment pro-cesses can execute the task more efficiently and cost-effectively.
Payment transactions are thus virtually predestined for outsourcing to a specialist service provider. With out-sourcing, companies not only release internal (IT) resources for more important and innovative tasks and reduce the costs of external consultants. The centralisa-tion of all payment procedures, the integracentralisa-tion of enter-prise applications, the automation and standardisation of payment processes also reduce the complexity of IT projects, while ensuring audit compliance and greater protection against manipulation and fraud.
BETTER FOUNDATIONS FOR DECISON-MAKING BASED ON REAL-TIME DATA
A high-performance cloud platform for payment processes lays the foundations for achieving a multi-bank, multi-ERP strategy as well as better company decisions on the basis of more current (real-time) data and sophisticated analytical and interpretive functions. But the effects of a standardised enterprise-wide cloud solution go way beyond the execution of payment transactions. With the increased transparency of cash positions and cash flows, better decisions can be made in many parts of the company – and not just in the area of finance – based on real-time data and clear analysis. With this, the payment platform makes an important contribu-tion to better interaccontribu-tions between controlling and cor-porate strategy. The CFO thus grows beyond the role of finance administrator and is increasingly positioned as a business partner within the corporate mangement.
MASSIVE SAVINGS
POTENTIAL
5
ONE MILLION EUROS SAVED PER YEAR
The savings that result from the deployment of a cloud-based payment solution for an internationally active medium-sized company can run to around one million euros per year. Of course, this sum will vary depending upon the specific situation. Nevertheless, the potential savings can be roughly estimated on the basis of a sample calculation for a typical scenario.
In a typical scenario an internationally active medium-sized company maintains about 400 bank accounts worldwide and deploys around 20 different e-banking tools. By using a standardised, unitary, auto-mated and ERP-integrated payment solution across the enterprise, the company will realise the savings listed in the table.
With an ERP rollout, further considerable savings arise: the company avoids external consultancy costs for the configuration of payment formats, for the creation of middleware, for communication with banks as well for systems and configuration testing. As the operator of the payment solution, TIS takes responsibility for communication and creates the bank and countryspecific pay -ment formats and types. In the case of a rollout in 20 countries with two banks per country, the cost of around 600 consultancy days’ time and effort is saved.
Not included in this sample calculation are the additional returns brought by the real-time overview of cash positions and cash flows as well as by the evaluation and analytical functions. Despite being basis for better business decisions, they are virtually impossible to quantify in monetary terms.
Model calculation for a medium-sized company based on the TIS (Treasury Intelligence Solution) cloud payment solution SAVING €300,000 €200,000 €250,000 €250,000 REASON
Lower IT costs for bank-specific e-banking tools
Lower operational costs
Lower annual bank charges
Automation/ERP integration
COMMENTARY
Experts estimate costs of €15,000 per year for the operation of a bank-spe-cific e-banking solution (maintenance, licence fees, software updates, system administration, system tests, database configuration, etc.) Eliminates expenses for manual liquidity tracking, manual administration of bank accounts and bank master data as well as the bank-specific administration of signing authorisations.
Based on higher transparency and easier comparability as well as the better negotiation position with banks (no bank-specific lock-in effect in payments processes because of specific e-banking tools). No manual IT input re-quired for the collection and transfer of bank statements to the ERP system
