Accounting Best Practices, Fifth Edition

3–32. Install a Payment Factory

In a typical accounts payable environment, a company allows its subsidiaries to manage their own payables processes, payments, and banking relationships. The result is higher transaction costs and banking fees, since each location uses its own staff and has little transaction volume with which to negotiate reduced banking fees.

An improvement on this situation is the payment factory, which is a centralized payables and payment processing center. It is essentially a subset of an enterprise resources planning (ERP) system, specifically targeted at payables. It features complex software with many interfaces, since it must handle incoming payment information in many data formats, work-flow management of payment approvals, a rules engine to determine the lowest-cost method of payment, and links to multiple banking systems.

Key payment factory benefits include a stronger negotiating position with the company’s fewer remaining banks, better visibility into funding needs and liquidity management, and improved control over payment timing.

The payment factory is especially effective when the payables systems of multinational subsidiaries are centralized, since cross-border banking fees can be significantly reduced. For example, it can automatically offset payments due between company subsidiaries, resulting in smaller cash transfers and similarly reduced foreign exchange charges, wiring costs, and lifting fees (a fee charged by the bank receiving a payment), ...