Manual changes-possible to automated payment factory?

Manual changes-possible to automated payment factory?

The purpose of using a payment factory within a company is to centralize and automate various payments.

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Features of a fully automated payment factory

The purpose of using a payment factory within a company is to centralize and automate various payments to internal and external payees to the greatest degree possible when executing, transferring and posting them.

If the payment factory is set up as an inhouse bank, payments between subsidiaries or between a subsidiary and a parent can also be processed via IC accounts (intercompany accounts). This reduces the great number of individual accounts of group entities with the banks concerned and thus increases transparency, efficiency and significantly decreases cost (e.g. processing costs for the elimination of IC payables and receivables, bank charges).

In order to automate payment transactions, incoming and outgoing data formats (SEPA, CGI, SWIFT message types, etc.) must be harmonized and interfaces be defined for the ERP systems and external banks providing data. Bank statements are imported electronically, and so can be allocated and posted to the related accounts, as well as routed (within the inhouse bank structure), which includes clearing and cash pooling. Appropriate rules must be specified for import, export, routing, verification and release mechanisms as well as account allocation in order to ensure the smooth processing of electronic payments.

Once the payment factory has been successfully set up and it is possible to process payments entirely electronically – also known as STP (straight through processing) – one should assume that manual intervention in the system is no longer necessary. In reality, numerous manual changes are however still made throughout the entire process chain. Why is that?

Reasons for manual intervention

Reasons for manual intervention could be among others:

  • IC settlements of subsidiaries or other corporate departments with no access to the payment factory must be generated manually by a central treasury function
  • Payments received in external bank accounts without remittance advice (or corresponding forecast data) must be allocated manually
  • Aborted payment transactions (cancellations, rejections) must be manually reversed and corrected, as the executing or receiving bank has rejected payment, for example due to insufficient or incorrect information
  • Special payments (e.g. dividends) are subject to upstream workflows outside the system, which do not generate the data sets necessary for the payment factory and therefore are not in compliance with the requirements for automated downstream processes
  • Adjustment entries that become necessary for month-end closing activities (non-recurring items, special cut-off times)
  • Adjustment entries that become necessary due to incorrect manual entry of payments

Another factor is the international rollout of a payment factory, namely the inclusion (connection) of new group entities and thus incorporation of local requirements with regard to formats, types of payment, agreements with banks and other specifics. Experience has shown that, naturally, more manual effort is required during the early stages of such rollout projects, which however can, and should, be gradually decreased in the course of real-time system adjustments.  

Risks and potential for improvement

The question is whether such manual activities are necessary and/or sensible in view of largely automated processes. Are they only continued because no-one has made any effort to replace a workaround once established or because such manual intervention ostensibly serves the purpose of control?

Manual activities not only reduce process efficiency, they also present risks. In areas where manual access is permitted, e.g. for the entry of ad-hoc payments, the door is swung wide open to crime (specifically e-crime). Cybercrime organizations increasingly attack corporate payment processes and attempt to initiate money transfers to accounts of unauthorized third parties by means of supposedly secret and urgent payment instructions. The most recent developments are alarming and have made security, including cyber security, a prime focus.

Of course, key personnel responsible for cash management should always have the possibility to intervene in payment processes for correction and clearing purposes. Especially the manual entry/correction of payments via an input screen will always have to be available as an option, particularly for backup purposes, to be able to rectify technical failures or extraordinary and special circumstances.

However, what should be avoided at all cost are manual adjustment entries, which are caused by incorrectly entered payments (see last point above), as this is always an indication of insufficient control mechanisms within the system or upstream systems. Rules, allocations and processes on file can also result in unnecessary manual effort if they are not updated on a continuing basis. Regular adaptation to ever greater professional requirements, developments in cash management (e.g. virtual accounts) or changing standards and regulations, as well as system upgrades should be implemented without fail.

With regard to innovations and improvements it is of great importance that the system offers suitable reports, dashboards, short messages or similar, in order to alert users in real time to drawbacks, potential risks or errors. For example, a person in charge would be alerted to recently accrued erroneous payments by some graphics or other features (eye-catcher). Further information on the error and the entity causing it could then be obtained via a link, so that suitable remedies could be initiated.

Conclusion

In order to maximize the degree of automation of payments, reviews of existing processes and new professional requirements should be undertaken on a regular basis in order to determine the potential for optimization of current payment factory procedures. In this regard, companies should also investigate to what extent a system upgrade by the manufacturer could offer new functionalities and contribute to further optimization.

Manual intervention should be the exception rather than the rule, the latter being frequently the case in many companies. The central goal of centralized payment systems should always be to gradually increase the degree of automation within the payment factory in order to reduce manual effort and thus save cost and time, not least to minimize the risk of error and fraud due to manual intervention.

Source: KPMG Corporate Treasury News, Edition 54, April 2016
Author: Tobias Riehle, Manager, triehle@kpmg.com 

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