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13.6.2024 | Last updated: 13.6.2024

10 min read

Expert insights into future-proofing payments

Nomentia's payment centralization webinar maps the steps to tomorrow’s payment processes

As exchange rates fluctuate, inflation rises, geopolitical tensions escalate, and cyber threats loom larger, the imperative for heightened control and transparency in cash management becomes undeniable.

In this landscape, centralized payments assume a role of ever-increasing importance, evolving beyond necessity to become a strategic imperative.

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I had the singular opportunity to sit down with two industry experts, Jukka Heikkinen from Ahlstrom Group and Petter Huusko from Zanders Group, whose combined knowledge and experience from navigating regulatory hurdles to harnessing cutting-edge technologies, provided a comprehensive understanding of the strategic significance of centralized payments.

Why payment centralization matters?

How do our payment processes align with our strategic objectives? What measures do we have in place to safeguard against fraud and cybersecurity threats? How do we track and analyze our liquidity position, cash conversion cycle, and working capital efficiency?

These are only a few examples of business-critical questions cash managers and treasurers need to be able to answer when it comes to their cash management processes as a whole.

Centralized payments sit right at the heart of it all. If you’re trying to tackle emerging threats and obstacles supported only by fragmented and unified processes and disparate technologies, you have your work cut out for you.

“Control and visibility aid in better cash management, making informed investment decisions and reducing idle cash.” Jukka Heikkinen

Globally operating organizations tend to have their outlooks severely weakened due to the lack of cohesive cash management strategies and technology to support those aims. Without centralized payments, navigating through turbulent markets becomes significantly more challenging. 

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Discussing with Petter and Jukka it became quickly obvious that fragmented payment processes and disparate technologies not only impede efficiency but also compromise security measures, leaving organizations vulnerable to fraud, cyberattacks, and regulatory non-compliance. As such, it is imperative for cash managers and treasurers to ensure that their payment processes are tightly aligned with strategic objectives, fortified against evolving threats, and continuously monitored and optimized to maintain liquidity and financial resilience in this rapidly changing economic landscape.

Benefits of centralizing payments

My chat with these payment centralization experts made it clear that operating across multiple countries requires enhanced process efficiency and tighter control over payment and data management, even amidst the complexities of dealing with multiple banks and ERP systems.

It's imperative to establish stringent controls over payment processes, restricting access for both internal and external parties to ensure Treasury oversight and maintain clear visibility. Implementing secure methods such as transmitting payment files through SFTP folders not only bolsters overall security but also streamlines processes, potentially leading to cost reductions.

“It’s all about control and security – and the costs, of course.” – Petter Huusko

Centralizing payments offers significant benefits to businesses reliant on cross-border transactions. By consolidating payment processes into a centralized system, organizations gain better control and visibility over their cash flows across various jurisdictions, currencies, and banking partners.

This enhanced control facilitates more efficient cash management, enabling businesses to optimize working capital, reduce idle cash reserves, and mitigate liquidity risks. Moreover, centralized payment systems provide comprehensive data and analytics capabilities that empower businesses to make more informed investment decisions based on real-time insights into cash positions, transaction trends, and market conditions.

By leveraging centralized payments, businesses can streamline operations, minimize manual errors, and enhance compliance with regulatory requirements, ultimately driving greater efficiency, transparency, and profitability in their cross-border payment activities.

Payment centralization – key implementation considerations

Both Jukka and Petter agreed that when considering payment centralization, it's crucial to tailor the approach to fit the specific needs of the organization. Thorough planning and goal setting are paramount, with objectives typically revolving around enhanced security, cost reduction, or improved control over cash flows. 

“Understanding the need for centralization is key. Companies should define their goals: is it for security, cost-cutting, or better control?" – Petter Huusko

While the ultimate goal may be to consolidate systems and standardize processes across all subsidiaries, achieving this requires careful navigation of complexities, including training and change management. Anticipating resistance to change and investing time in laying out a clear path toward centralization before implementing a solution is essential.

Payment centralization through a payment hub is not a one-size-fits-all solution; it demands ongoing adaptation to evolving business needs and external factors before reaching full implementation.

Steps to successful payment centralization

Assessment: Begin your road map to centralized payments by assessing existing payment processes to identify inefficiencies, bottlenecks, and areas for improvement. Areas to consider include transaction volumes, types of payments, and regulatory requirements. Developing a clear plan outlining objectives, timelines, and resource requirements for streamlining payment processes takes you far.

Standardization: Centralized payment processes aim to unify and standardize your payment processes comprehensively: payment formats, protocols, and procedures across different departments, business units, and geographies. Establishing uniform processes reduces complexity, minimizes errors, and enhances interoperability with external systems and partners.

Automation: Leveraging technology to automate routine payment tasks like invoice processing, approval workflows, and reconciliation offers numerous advantages. Not only does automation reduce manual errors and processing times, but it also enhances accuracy and compliance with regulatory requirements. By streamlining these tasks, organizations can allocate resources more efficiently, allowing staff to focus on higher value. Additionally, automation provides real-time visibility into payment status and cash flows, enabling better decision-making and forecasting. 

Integration: Integrating payment systems with other enterprise systems such as ERP, CRM, and treasury management platforms facilitates seamless data exchange and synchronization across different functional areas, enhancing overall operational efficiency and decision-making capabilities. This integration allows for a holistic view of financial data, customer interactions, and treasury activities, enabling organizations to gain deeper insights into their business performance and optimize resource allocation. By breaking down silos between disparate systems, integrated payment solutions enable a more cohesive and agile approach to managing financial processes, ultimately driving greater productivity and competitiveness in the marketplace.

Security: Implementing robust security measures protects sensitive payment information and mitigates fraud risks. Strengthening security safeguards instills trust among stakeholders and minimizes financial losses due to fraudulent activities.

Common pitfalls in payment centralization and how to avoid them

As undeniable as the benefits of payment centralization are for robust and future-proofed payment operations, it doesn’t happen by itself. Common pitfalls in payment centralization can include underestimating the complexity of integrations, overlooking the need for robust change management strategies, and neglecting to align centralized processes with evolving business needs. Additionally, inadequate consideration of regulatory requirements and cybersecurity risks can lead to compliance breaches and data breaches, undermining the benefits of centralization. Also, attempting to centralize payments too quickly without proper planning and testing can result in operational disruptions.

“Payment centralization can become a time-consuming process, so it pays dividend to prepare to be flexible while assessing data and integration requirements.”  – Jukka Heikkinen

Detailed planning and structured project management are crucial for avoiding pitfalls in payment centralization and alignment with business needs. By carefully mapping out integration requirements, engaging stakeholders, and addressing regulatory and cybersecurity risks proactively, you too can ensure a smooth transition to centralized payment processes while minimizing disruptions and maximizing the benefits of centralization. 

The role of technology in payment centralization

There is no minimizing the role technology plays in payment centralization. It enables organizations to streamline processes, enhance control, and optimize cash management. Scalable and adaptable payment solutions capable of integrating with existing enterprise systems to facilitate seamless data exchange and synchronization while automation reduces manual effort and errors, particularly in tasks like invoice processing and reconciliation. Leveraging technology effectively is essential for successful payment centralization, empowering organizations to optimize efficiency, visibility, and resilience in their financial operations.

“Technology can do almost anything, but it will only do what people tell it to do.”  - Petter Huusko

While technology plays a crucial role in payment centralization, it's equally important to recognize that not every technology solution fits every process seamlessly. Sometimes, it is beneficial to view a payment hub implementation as an opportunity to assess, realign, and potentially rearrange processes to better leverage the capabilities of centralized payment technologies. This approach allows organizations to optimize their workflows, enhance operational efficiency, and maximize the benefits of centralization. By aligning technology with business processes effectively, organizations can unlock greater value from their payment centralization initiatives, ultimately driving improved performance and competitiveness.

Setting and achieving payment centralization KPIs

Setting and achieving the right payment centralization Key Performance Indicators (KPIs) depends on a variety of factors that should all eventually lead toward the initial goals of the process. It can involve aligning goals with the treasury function’s objectives, like reducing manual payments, reducing idle cash, and monitoring bank costs. By defining clear KPIs tied to the desired outcomes of centralization, like streamlining processes and enhancing control, organizations can track progress and measure success effectively. 

For example, KPIs may include the percentage reduction in manual payments processed through straight-through processing, the decrease in idle cash levels achieved through improved cash management practices, and the quantification of cost savings achieved through optimized bank relationships and reduced transaction fees. 

“When you centralize your payment operations you gain control and visibility, but also allow your business units to learn from each other.”  – Jukka Heikkinen

In the end, however, payment centralization KPIs define whether the treasury is a strategic function supporting business objectives or simply a cost center. Regular monitoring and analysis of KPIs make it possible for organizations to identify areas for improvement and drive continuous optimization of their payment operations, ensuring they remain aligned with strategic objectives and responsive to evolving business needs.

Future-proofing payment systems

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Future-proofing payments involve ensuring that urgent situations never arise by implementing robust processes and technologies that anticipate and address potential challenges proactively.

While technology plays a crucial role in enabling efficient payment operations, it's essential to recognize that human expertise is equally indispensable. Understanding organizational goals, aims, and processes is essential for designing effective payment solutions that align with strategic objectives. It's crucial to operate within the solutions available while planning for the future.

By centralizing payments in a flexible and adaptable manner, organizations can lay the groundwork for evolving their payment operations as needs change and the business environment evolves. This proactive approach empowers organizations to stay ahead of emerging trends and challenges, enabling them to navigate uncertainties with agility and resilience.

By combining technology with human expertise and forward-thinking strategies, organizations can create a payment infrastructure that not only meets current needs but also anticipates and prepares for future requirements.

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