Payment Factories seem to be forever mentioned in the financial press. If your company makes payments to vendors that have a fixed bank routing and made regularly, say weekly, the Coprocess Vendor Payments module offers efficient third party payments functionality in a cost efficient way. It is not intended for making a payment run more than daily and it does not calculate the best payment routing based on various criteria. It can however offer various liquidity and cost benefits, it can sit alongside our multilateral netting and intercompany reconciliation modules too if you are a current client.
One of our longstanding clients gave a talk at a recent workshop, well received by the audience, on the implementation of our version of a payment factory.
The Coprocess system
We are a specialist company offering an internet based netting system to corporate and banks for their corporate clients. The system has been designed based on our 25 plus years of experience in netting. The latest version is built on the industry standard .Net framework.
Access to the system is by a browser, there is no additional hardware or software for the client to buy. We can offer the system via Software as a Service (SaaS). Our hosting architecture and application is certified to SSAE18 Type 2, has back-up and recovery and redundancy built in. It offers secure hosting to many of our 125 clients.
The same system can be configured easily for new clients to avoid any coding changes and provides intercompany netting capability with matching and invoice level negotiation. With a few changes to the configuration parameters it can also provide a month end intercompany reconciliation system and a 3rd party vendor payment system.
Making payments centrally
In our client’s case the payment run is weekly, all the vendor details are uploaded from the ERP, along with the invoice details of everything that needs paying in that run. These are approved by the Business Units (BU) in country, using a 4 eyes function. Again BU’s just need a browser and access to the internet to sign in, using either a corporate ID, user ID and password or making use of our Single Sign-On (SSO) using the SAML 2.0 standard.
Users access rights is determined by a ‘role’ a collection of various system functions collected together and given a meaningful name, such as ‘Participant Full Access’. This makes it easy for Treasury to administer the user access. The ‘Participant Full Access’ profile for example allows BU users to approve or delete transactions imported centrally by the corporate’s treasury department. Because the system is real time they can pull their reports on demand and be notified through the system of payments made.
The payment process itself takes place within Treasury. It centrally extracts the invoice details from the various ERP systems and imports them into Coprocess.
Our client makes all its payments out of in-country accounts. The system converts the total amount to be paid by each BU into a single local payable in the BU’s home currency. The BU can either pay this in cash on a predetermined date to Treasury or the system can output the information needed to update an in-house bank (IHB), intercompany loans etc instead. All payments in foreign currency are converted into local in-country payments on behalf of. Treasury provide the FX expertise and dealing rates in an import file and the Coprocess system converts the net payable by the BU based on the country and currency rules relating to the BU’s location.
The payment files could be sent directly from our servers but are currently returned to the sender so they can forward securely via their existing SFTP file delivery to a SWIFT service bureau.
The system provides comprehensive reporting. For example the BU’s need a statement to show what has been paid and the amount they owe to cover those payments. This can be pulled on demand from the system and for completeness is automatically mailed by the system in pdf format once the payment run is complete.
Similarly, 3rd party advices are sent to the vendors via email. Export from Coprocess is available, perhaps to a spreadsheet or other systems in various formats. Files of paid invoices in various formats are available and payment files are sent in XML format. We encourage a uniform approach for all the banks (the banking structure is rationalised but there are still some banks better suited to specific currencies) but we support many different currency, bank, payment instrument and country formats. FX confirmations are emailed to banks.
The benefits of centralised payments
There is further explanation of Vendor Payments on our website but briefly:
- The BU’s don’t have to worry about segregation of duties, all they need is a payment approver to be available once a week
- Payments are made out of central bank accounts on behalf of the BU’s, they no longer need bank accounts in country for disbursements
- All cross border payments are converted, if the accounts are set up that way, to debit an in-country Treasury currency account in the appropriate payment format. For example all USD payments would be made from a US based bank account in local ACH, FED wire, CHiPS formats and in the future cheques
- Combined with cash sweeping , the in-country accounts of the business units are just used for collections and the funds swept up to be used centrally. This could be for paying down debt or intercompany lending, investment etc.
This is obviously an excellent mechanism for improving liquidity. No more precautionary or transaction balances needed in country, central buying of the FX requirements, best prices, bulked up FX deals, better risk management as it is handled by experts. BU’s settle all their invoice payments net in local currency, currency conversion is completed centrally.
Vendors receive one single payment in their invoiced currency and an advice, electronic and in pdf, of all the invoices being settled in that payment run. So they are pleased with the process too.
Is this something that would make a big difference in your company? Please contact us for information.
Want to share this with colleagues and others please use the social share buttons at the bottom of the page, subscribe to our blog and please post your comments.