The post “SEPA Compliance, Tick. What Next?” highlights the current status of your SEPA project and provides an overview of what might be considered next. The SEPA conversation has shifted from compliance to one of process improvement. After all, you have done so much to standardise your euro-based payments and direct debit collections, it would be a shame and a waste to stop at that.
‘Payment Factory’ is one of the phrases on the tip of everyone’s tongue right now. Everybody seems to be talking about SEPA and payment factories. But before we get into the details, we ought to know what a payment factory is! , If you ask the simple question what is a payment factory, you’ll get a variety of responses, depending on who you ask.
The intention of this post is to give you a simple overview of What A Payment Factory Is. So when somebody speaks to you about SEPA and payment factories you’ll know exactly what they are speaking about.
What is a Payment Factory?
In short, a Payment Factory is the centralisation of the payments process within an organisation. Easy, eh?
It can’t be that simple…
It is! The complication and confusion arises when we start to speak about what is centralised, and where and how the centralisation occurs. For example, some definitions refer to the centralisation of external payments only, other models refer to all payments within an organisation. Some implement the payment factory process within a Shared Service Centre (SSC), others may centralise the payment process within the organisations Treasury department.
The implementation of a Payment Factory is completely customised according to your corporate requirements. These will include the set up of your organisation, the objective of your Payment Factory implementation and the Enterprise Resource Planning (ERP) system(s) being used.
Efficiency through centralisation…
To centralise the payments process, you need to have a standard payments and collections process. In this environment the central payments processing team doesn’t need to worry about different payment processes and various in country requirements. Rather a single and streamlined process is executed, and this ensures that the central processing team is operating at its most efficient.
How are SEPA and Payment Factories related?
Already we have talked about centralisation and standardisation. Your SEPA implementation should have standardised your euro currency payment and collection processes. Euro payments and direct debit collections within the SEPA countries will require:
- Bank details in the form of BIC (Bank Identifier Code) and IBAN (International Bank Account Number)
- Submission of the payment / direct debit to the bank in a ISO 20022 XML format
- Fewer payment instruments for SEPA Credit Transfers and SEPA Direct Debits across the SEPA countries
- A standardised direct debit mandate
- A common bank to corporate process. including
- Reason Codes R-Transactions, R-Messages
- Reconciliations
You may not be entirely ‘there’ yet, but the implementation of SEPA within your organisation will bring about standardisation and this in turn should (!) make the overall payments and collections process more efficient.
Does it make sense for your organisation to have teams in each country running the ‘same’ standardised SEPA process. Having gone through the effort of implementing SEPA, can you see opportunities to centralise the payments function within your organisation?
What are the benefits of a Payment Factory?
This is where it gets interesting, and where the definition of a Payment Factory becomes murky. The reason being, if/when you decide to implement a Payment Factory, you will not do this in isolation. You will implement many other changes to ensure the most efficient operation of your Payment Factory.
- In an organisation that is operating in multiple SEPA countries, there are cost and process optimisation benefits of having a single payments processing centre. Imagine having a single and responsible team to handle payment processing within your organisation:
- Local processing is transferred to a central team. This will remove duplication of processes and reduce the number of employees involved in the payment process within your organisation
- Visibility of all external payments via the central team provides your organisation with a very powerful insight
- Opportunities for supplier rationalisation, the ability to negotiate better terms with suppliers
- Enables better cash management processing
- Provides improved control of the master bank account information
- Rationalisation of your bank partners, and bank accounts will allow you to:
- Work closely with a single or fewer bank(s) which best serve your organisation at the most efficient price – allowing your SEPA payments to be channelled through either 1 or 2 banks (further standardising your payments process)
- Reduce the number of bank accounts, thereby simplifying:
- The technical set up of your accounts payable and receivables process
- The number of bank accounts at your bank(s) giving you greater visibility of your cash, and in turn allowing you to better manage your cash
- Where your organisation, bank requirements, tax and regulation allow, the corporates central processing team can make Payments On Behalf Of (POBO) its subsidiaries
- This is a another hot topic, more on it soon…!
- Where permitted, this will dramatically reduce your organisation bank accounts, since now all of your business units/subsidiaries within the SEPA zone can technically be served by 1 euro bank account – the SEPA ‘utopia’
- Payment Factories coupled with a POBO model within the SEPA region enable payments via the master euro account. This will bring about reduced transaction and foreign exchange (FX) fees, because the transaction is treated as domestic rather than foreign
- This is supported by the SEPA XML file, within the Ultimate Payer details where you identify the actual entity that instructed the payment. Thanks to SEPA this information is passed within your XML file to the bank, the clearing and ultimately to the supplier
- The centralised payment unit will result in cost savings brought about by reduced internal per-payment processing costs, and reduced bank fees and charges
Has that helped you understand What a Payment Factory Is?
Think of a Payment Factory as one of the components that will drive efficiency within any organisation operating in multiple SEPA zone countries. Alongside the implementation of the payment factory you will need to make other changes that will ensure your factory works at its best for you.
Let me know your thoughts about SEPA and the idea of a Payment Factory. Have you completed your SEPA implementation, and are you now thinking of implementing a payment factory? Have you implemented a payment factory? I’d love to hear how things are going for you…