Corporate TreasuryCentralisationCentralisation OutsourcingSimplifying Payment Processes by Consolidating Complex Bank Relationships

Simplifying Payment Processes by Consolidating Complex Bank Relationships

The corporate world of today operates within a cross-border networked economy but, for the vast majority of organisations, their internal structures and processes still echo the structures they had in place when working almost solely within individual national markets. This leads to inefficiencies and wasted resources. Corporates’ existing processes combined with increasing multi-country dynamics have made it more and more difficult for corporates to manage and monitor their cash movements. A prime example of this is the complex and costly ways businesses manage payments through their global network of banks. It is estimated that, on average, it costs a corporate between €20,000 and €50,000 annually per channel to maintain connections to their banks.

A lot is changing in the banking world and corporate treasurers are under increasing pressure to know where the cash sits within the organisation and who the corporate has placed its money and credit lines with. In the wake of the credit crunch, corporate treasurers are consequently having to adopt a more strategic approach to managing their cash movements in order to provide necessary operating capital and understand where cash sits at any given time. One of the easiest and most efficient ways to achieve this is to consolidate these multiple bank connections into a single channel, thereby simplifying payment processes.

As cost reductions and increasing process efficiencies have become the top priorities for corporates, there are numerous benefits to consolidating these technical connections and outsourcing the management of them.

Benefits to Outsourcing Cash Movements

Corporates, regardless of their size, are looking to manage their cash positions in a unified way globally. One of the most efficient ways to handle this is to go through what is called a payment factory. A payment factory allows organisations to speed up and simplify corporate access to banks by combining value-added services, such as message validation, reformatting and data enrichment, with single point of connectivity.

The main drivers for outsourcing the consolidation of the movements of cash are, first of all, the complexities of the multiple relationships many international corporates have with their banks. Often, corporates have individual bank contacts and different payment systems in each country, which makes central monitoring of an organisation’s cash movements a time-consuming task.

By outsourcing this process, corporate treasurers will be able to reduce the number of technical interfaces they have to manage and consolidate the payment process to just one interface in one location and in one system.

Furthermore, organisations will be able to reduce their system maintenance costs as local system support in each country and the maintenance of every single banking relationship will be outsourced. By outsourcing the management of their payments interfaces, organisations have the unique opportunity to consolidate these payment flows in a short period of time. In addition, further consolidation of financial supply chain (FSC) processes such as e-ordering and e-invoicing will be possible.

In post-credit crunch times financial risk management has become paramount. As such, the second driver for outsourcing is receiving timely information to help increase transparency of the payment process. In order for organisations to be able to manage risk and financial forecasting, it is important for them to gain complete visibility of the entire payment process, including the complete information flow between the bank and the corporate.

Case Study: How E.ON has Reduced Banking Relationships

Changes in regulation and the way that payments are handled by banks and their corporate customers have provided new ways in which organisations can connect to their bank. With FSCs becoming more and more complex, there is a need for more efficient ways to manage payments and connect to their network of banks and trading partners.

For the majority of corporates, the information currently being sent directly to their banks is neither seamless nor integrated, and typically comes in via multiple channels such as payables files or invoices. As such, it is rarely in a format for banks to use and pass on. As more and more corporates are focusing on their core business, it is increasingly understood that a simpler and more cost-effective outsourced connectivity service would be extremely beneficial. This is because it would enable the corporates to integrate, standardise and process the information before it is passed on to the bank or other corporate organisations. To make lasting changes to their infrastructure, a corporate needs one simple system that collates, integrates and processes all information in a timely fashion. As experienced by E.ON, the world’s largest privately owned electricity and gas company, such a move must be cost-effective and therefore have limited impact on any existing legacy IT infrastructure, as corporates neither have the time nor the budgets to do otherwise. Finally, flexibility is key, so that any changes in standards or formats, for example, can be easily managed.

E.ON is one of the organisations that made changes to the way it connects to its banks through a single connectivity platform or payment factory. E.ON was able to implement this with little business disruption and in the most cost-effective way. The platform that the company implemented, was a simple, uniform and flexible structure for all business communication and the flow of incoming and outgoing payments. E.ON outsourced the transportation, conversion, monitoring, error reporting and general support of message flow. With a more co-ordinated infrastructure, E.ON was then able to connect to other companies and banks electronically, allowing E.ON to accept and send invoices electronically through its accounting systems or via a secure internet portal. Most importantly, however, the energy provider has since been able to produce more accurate invoices based on the real value of the meter readings as opposed to estimates. By having a single point of entry, E.ON is able to exchange messages with its wider network of suppliers and partners, resulting not only in enhanced consolidation of its infrastructures and increased cost-efficiencies, but also a better customer service.

In addition to a need for more efficient business processes, new regulation around the formats in which messages were forwarded between organisations had come into force. Previously, messages sent in various formats and through multiple channels meant that the transmission process was slow and the information was incorrect. When moving information from one format to the other, it was often not properly mapped and the information might consequently contain errors, requiring payments to be repaired. E.ON messages are now formatted so that communication exchange is seamless and the company is able to manage the future development of technology, systems and information flow with the same high level of flexibility and security. This is important as is means that the company does not need to keep track of other companies’ hardware upgrades or firewall changes, which would be required to maintain connections to other organisations or financial institutions.

As companies are increasingly looking to outsource IT business functions to concentrate on their core operations, they are also looking at consolidating their technology infrastructures. As opposed to a patchwork of legacy connectivity, file, messaging, and integration of technologies with little or no visibility over it all, E.ON managed to solve these issues, demonstrating how a more co-ordinated infrastructure can benefit not only the organisation in its drive to enhance efficiencies but also that it benefits all in the financial supply chain.


Now is the right time for many organisations to look at improving their working capital and financial risk management, driven by the desire to reduce the number of relationships they currently hold with their banks. Payment factories provide a way to make these changes in the payment process and achieve the cost efficiencies that organisations are so keenly working towards.

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