Centralising group payments: cost and quality advantages at every level

Introducing a payment factory into a group involves channelling all the banking orders from each group entity towards a specialised central service. The factory makes the payments on behalf of the entities and posts the associated advance payments in each entity’s intercompany accounts.

This type of system has numerous advantages for groups of any type and any size.

Immediate cost advantages

From a financial standpoint first of all, having all payments concentrated within one sole entity brings about a substantial reduction in costs:

More favourable rates can be negotiated for processed orders and transaction fees
Tariff advantages can be obtained that are not accessible when payments are dispersed
The number of order remittances is reduced
Exchange costs are decreased
The number of bank accounts required by subsidiary companies is limited
Competition among banks can be used to optimum advantage

So, for example, a group of health care institutions whose subsidiaries make 550,000 domestic payments annually totalling €2 billion, calculates the direct savings made from centralising these payments at €750,000 per year.
In addition to these direct gains, introducing a payment factory also brings indirect financial advantages:

The centralisation of payments in foreign currency allows better management of the foreign exchange risk
The specialised nature of the central service reduces internal processing costs
Being able to control all group transactions leads to a more agile response to banking partners, thus obtaining improved cash management (flow turnover)

Major quality benefits

The benefits that can be expected from a payment factory from a quality standpoint are no less remarkable:

The inclusion of a third party in the payment process considerably limits the possibility of payments that are fraudulent or do not comply with group rules, such as payments to unapproved suppliers
Specialising the payment function allows for improved processing, and this means that payment reliability increases as well
Since it allows an exhaustive and reliable analysis of transactions on the whole-group scale, it is a valuable decision-making tool for optimising relationships with external and intercompany suppliers

Effort is rewarded

All organisations whose payments are dispersed among different entities can make savings by instituting a payment factory. Nevertheless, based on the specifics of each group, the key issues for each involve different transactions.

For example, by focusing on centralising the foreign currency payments of some 200 business units spread across 26 countries, an industrial group is achieving gains estimated at over €3m per year; at the same time, it is improving both its currency hedging and its payment reliability (now 99.7% of orders are processed end-to-end without incident).

In any event, the cost and quality advantages of centralising all or part of a group’s payments fully justify the initial planning effort that is needed to set up a payment factory. In the industrial group mentioned above, once the planning and technical investments were made, the number of transactions processed in the factory increased tenfold in eight years, without any increase in the structural costs of the central service.

Implementation

The payment factory in Exalog’s Allmybanks software

The payment factory module that is integrated into the Allmybanks application (supplied by Exalog) is designed to provide these advantages, whatever the size of a group or its international reach. From a structural point of view, the fact that this application is provided in SaaS mode allows for flexible implementation of the centralised payment system:

Standardised validation procedures that are rigorous and auditable can be implemented group-wide before the factory goes live
Entities can be integrated into the factory progressively; those that are not yet integrated continue to make payments from their own accounts (though the tracking of these payments is centralised)
Technically, implementing the system requires only adjusting the settings in the application, with no software development required

Centralisation adds an intermediary to the payment process. It is therefore indispensable to provide precise information to the sender on the status of their payment. Thus, in Allmybanks, each entity can closely track the routing of the orders it has sent to the factory:

Awaiting processing
Sent to the bank
Processed by the bank
Received by the beneficiary

At Allmybanks, the functioning of the payment factory is akin to that of a bank. The intercompany account is used in the same way as a bank account, and the parameters for the order sending procedure (validation workflow) are the same as those for traditional bank payments. This principle, which greatly simplifies implementation, also allows the same types of charges to be applied to intercompany accounts as to bank contracts, thereby allowing the services of the payment factory to be reinvoiced.