Management professionals from all industries are always looking for useful and innovative operating models, and treasury executives are no different. In the past, these professionals have used shared service organizations (SSO) and in-house banks (IHB) to reduce expenses. However, the payment factory is the new kid on the block, and it offers the best of both worlds. The hybrid concept is more complex, but if you are having trouble deciding between SSO and IHB, perhaps the payment factory model is right for you.
Shared Service Organizations and In-house Banks
If your company has a client-centric culture and sponsorship from top executives, you have probably used SSO in the past. The system serves to lower transaction fees and streamline your interfaces through a centralized payment operation. On the other hand, IHB allows for greater financial control and distributes funds through a captive bank. This method simplifies cash flow and minimizes the need for multiple bank accounts.
The Basics of Payment Factories
What is a payment factory? This model combines the best of SSO and IHB into a complex hybrid model. The system concentrates your enterprise’s funds and distributes them in a fashion designed to decrease bank and cross-currency fees. To put it simply, you get the efficiency of SSO combined with IHB control and cash management benefits.
Should You Use a Payment Factory?
Take a quick stock of your enterprise’s cash balances, currencies and organizational structure. Do you have large payments in many different currencies? Do your cash levels vary from deficient to surplus depending on the region? Does your company have diversified business entities? If you answered yes to these questions, you and your company are probably good candidates for the payment factory model.
Tips for Implementation
Making the shift to a payment factory model may be extremely beneficial and highly cost effective in the long run. However, it is still a daunting and meticulous task. While you design your model, be sure to consult with major company players, as well as tax advisors and attorneys. Take the time to thoroughly understand the entire company’s needs, and avoid jumping into implementation. This complex system should be implemented in manageable phases to minimize financial shock and maximize effectiveness.
If you have outgrown your old payment management system, you may need to energize your model with a new design. The payment factory offers a unique blend of SSO and IHB tactics that can increase company savings immediately and in the long run.
Kidal Delonix is a contributor to Mr. Hoffman's blog. The views and opinions are entirely his/her own and may not reflect Mr Hoffman's views.
