In a typical accounts payable environment, a company allows its subsidiaries to manage their own payables processes, payments, and banking relationships. The result is higher transaction costs and banking fees, since each location uses its own staff and has little transaction volume with which to negotiate reduced banking fees.
An improvement on this situation is the payment factory, which is a centralized payables and payment processing center. It is essentially a subset of an enterprise resources planning (ERP) system, specifically targeted at payables. It features complex software with many interfaces, since it must handle incoming payment information in many data formats, workflow management of payment approvals, a rules engine to determine the lowest-cost method of payment, and links to multiple banking systems.
Key payment factory benefits include a stronger negotiating position with the company’s fewer remaining banks, better visibility into funding needs and liquidity management, and improved control over payment timing.
The payment factory is especially effective when the payables systems of multi-national subsidiaries are centralized, since cross-border banking fees can be significantly reduced. For example, it can automatically offset payments due between company subsidiaries, resulting in smaller cash transfers and similarly reduced foreign exchange charges, wiring costs, and lifting fees (a fee charged by the bank receiving a payment), while also routing payments through in-country accounts to avoid these international fees.
There are several problems with payment factories – the seven figure cost of the software, gaining the cooperation of the various subsidiaries who will no longer have direct control over their payment systems, and different banking relationships.
Major suppliers of payment factory systems include SAP, Trema, and Wall Street Systems.
How can you adopt the payment factory to a low-budget situation? First, centralize your accounts payable operations. Second, minimize the number of banking relationships. Third, try outsourcing the foreign exchange operations with one of your remaining banks.