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3 Strategies for CFOs for Driving Payment Optimization

01-03-2023 5 min read

From payment optimization to in house banking 

Payment optimization has been on the agenda for CFOs for many years. With the economic upheaval of the recent months, however, it has become even more relevant. Centralizing payment transaction is important step towards that as it helps provide better transparency over cash flows, enhance cash-forecasting, control spend across entities, ensure compliance, and – last but not least – implement fraud prevention.    

But what does payment optimization actually mean? And how can it be achieved?

Depending on the corporate setting and the volume of international payment transactions, the definition of  payment optimization can vary. It can be interpreted as an in house banking or payment factory that centralizes the handling of most or all company-wide payments. However, building an in house bank can be a complex task, involving many technological and legal considerations. Therefore, companies often leave the concept of in house banking to major global players. Don’t let yourself be discouraged by the seemingly high complexity! You don’t have optimize your payment processes with a big bang, you can also take it one step at a time. Importantly, a full-fledged in house banking with payments on behalf of (POBO) doesn’t have to be the ultimate goal. Rather it will be much more palatable and efficient to think in an agile approach.  Start “small” with base functionalities such as centralizing payments within one solution and keep enhancing payment processes by adding on more functionalities until the perfect level of optimization is reached.  

There are three key strategies that have proven successful for centralizing and optimizing payments in any organization. 

1 – Bank Communication: Get Connected

Reducing the number of banks, bank accounts and electronic banking systems is often the first and most straight-forward step an organization can take towards payment optimizations. For example, a company with 50 entities globally might have just as many banks and electronic banking systems to handle, maintain and log in to. By streamlining bank communications, as well as the communications with payment service providers (PSP), and by replacing locally managed systems with a centrally controlled solution, it is possible to achieve a first important milestone and improve company-wide visibility.  If you are wondering how to get started with achieving direct bank communication – start with finding a trusted partner that can take care of this step for you. The Serrala Payments as a Service offering brings in a team of experts in the area of bank communication, eliminating the pain from your organization so that you can focus on what you need. Our service not only provides you bank formatting and assists you in establishing bank connectivity, it provides a wide range of options of communication channels (SWIFT, H2H, API, EBICS), a library of payment formats (ISO 20022 XML, CGI, SEPA, and more) and advisory on the best route for you to take.

2 – Harmonize and Standardize Processes in a Payment Hub 

Defining and implementing standardized payment processes for all corporate entities is the next essential step companies can take to move towards optimization. Besides increasing process efficiency, it helps reduce operational and fraud risks. If all payments workflows and authorization concepts are harmonized in a central payment hub, consistent and visible, it is easier for everyone to communicate, maintain, and adhere to them. Every payment user across the globe will know exactly which procedure they have to follow, who is authorized to approve payments, what the payment limits are, and what to do in case of suspicious payments. Standardization, therefore, can eliminate erroneous duplicate payments and reduce the opportunities for fraud, while also providing better control over payments in general.

3 – POBO: Maximize Transparency and Control

Collecting and managing all payment files and information in a single solution is the third and final ultimate strategy for centralizing payment optimizations. You might call it a payment factory or a virtual internal corporate bank with POBO. In any case, it enables the highest possible levels of efficiency and control. By building on the foundation of the first two steps described above, organizations can create their own virtual internal corporate bank. A dedicated legal entity or a group of entities can act as the bank for the entire company, providing services to the group. This typically includes the intercompany settlement of internal payments to reduce the number of costly external payments as well as making payments on behalf of (POBO) entities to further streamline company-wide payments. Setting up such a virtual internal corporate bank with POBO structure requires good planning, but the benefits abound. Instead of having to overlook a complex and costly network of internal and external payment streams, multiple currencies, and disorganized accounts receivable and accounts payable processing, the virtual internal corporate bank including POBO enables very cost-efficient internal settlement and outbound payments processing. Internal payments would be settled in a cost-efficient manner and provide further transparency. The internal bank not only provides the immediate impact of reducing the number of external payments, it provides the transparency needed to help you reduce the number of bank accounts. Subsidiaries, for example, could do away with disbursement accounts. Besides these benefits plus a simplified cash pooling, this centralization optimization level of payments maximizes transparency and control for the CFO. 

Conclusion: Take Payment Optimization Step by Step

“The journey of a thousand miles begins with one step”, so if you are considering payment optimization in your organization, start with some key steps. Then, gradually take your payments to the next level – until you eventually start in house banking. Every step towards managing payments efficiently and securely is an important step towards overcoming the barriers of centralization and achieving optimal visibility and control of payments.

If you would like to find out how you could optimize your payments and even take the plunge into the world of in house banking download our eBook Payment Optimization: A step by step guide for business organizations,  or get in touch with us. We are passionate about empowering CFOs with effective solutions for maximum transparency, control, and digitization of finance.  

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