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25.6.2024 | Last updated: 17.7.2024

15 min read

Why payment centralization matters?

Critical approach to future-proofed cash management

The complexities of the global financial landscape are increasing, driven by fluctuating exchange rates, rising inflation, geopolitical tensions, and pervasive cyber threats. Some argue that these challenges are not new but a return to a historical norm following an abnormal period of relative stability. Whether they are correct or not is debatable, as predicting the future is inherently difficult. History may repeat itself, but seldom in a one-to-one fashion, and even if it does, can you afford to wait?

Organizations, especially those operating in a cross-border and cross-jurisdiction environment, cannot afford to be complacent. Their cash and treasury management functions face pressures from emerging regulations, the need for growth initiatives, and the demand for financial stability to support current operations, all while meeting increasing expectations from upper management. 

Nomentia’s “Future-proofing payments” webinar with two industry experts, Jukka Heikkinen from Ahlstrom Group and Petter Huusko from Zanders Group, explored why payment centralization is crucial for navigating these challenges.

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What is payment centralization?

Treasurers and cash managers are under immense pressure. They must ensure business resilience by hedging against transactional risks in a quantifiable way, be able to adapt quickly to new opportunities and support strategic goals. 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.

Hence, it is imperative for cash managers and treasurers to align their payment processes with strategic objectives, fortify them against evolving threats, and continuously monitor and optimize to maintain liquidity and financial resilience in this rapidly changing economic landscape.

Real-world expertise: payment centralization

I had the good fortune to sit down with industry professionals for 45 minutes to discuss the challenges and opportunities of payment centralization. This discussion highlighted how centralizing payments is not only critical for increasing business visibility but also for elevating treasury from a cost center to a strategic, value-adding function.

"Understanding the need for payment centralization is important. It's all about control and security." - Petter Huusko

The importance of payment centralization

Despite recent macroeconomic turbulence, the core questions that treasury functions grapple with have remained unchanged. When the C-suite inquires, they must be able to answer: What is our current cash flow status? How efficient is our payment processing? What is the status of our banking relationships and costs? What strategies are in place for optimizing working capital? How do we ensure the accuracy and timeliness of our payments?

These information requests underscore the dual roles of treasury: a cost center and a strategic partner to decision-making. They highlight the treasury’s critical responsibility in maintaining financial health and driving strategic initiatives and the urgent need to align them:

How payment processes align with broader strategic objectives?

For cash managers, key questions include safeguarding against fraud, tracking liquidity, analyzing cash conversions, and optimizing working capital. Fragmented payment processes and disparate technologies pose significant risks, like fraud and cyber-attack vulnerability. Centralizing payments addresses these risks while offering many benefits:

  • Centralized payments improve control over cash flows across different jurisdictions, currencies, and banking partners.
  • Centralized processes bring efficiency to cash management by optimizing working capital by reducing idle cash reserves.
  • Comprehensive data and analytics capabilities enable informed decision-making with real-time insights into cash positions and transaction trends.

"Scattered payment landscapes are common, with varying connectivity methods and manual processes. Implementing a payment hub consolidates these disparate systems and processes, streamlining operations and enhancing efficiency." - Jukka Heikkinen

Centralized payment systems

Looking at the evolving business landscape it becomes quickly evident that where multiple, often disconnected payment platforms and processes that operate independently across different departments or locations can lead to inefficiencies, increased operational costs, and higher vulnerability to fraud and compliance issues, centralized payment systems solve a variety of issues burdening modern treasurers and cash managers.

Payment hub functionalities centralized payment processing
Centralized payment processing
Ability to manage various payment methods like direct debits, payroll and bank to bank payment, in one platform. 
Payment hub functionalities integration capabilities

Integration capabilities
Seamless integration with existing systems like accounting software and ERP systems. 

Payment hub functionalities security measures

Security measures
Robust security features such as encryption, tokenization, and fraud detection to safeguard sensitive payment data. 

Payment hub functionalities automation
Automation
Automation of payment processes to reduce manual effort and streamline workflows, saving time and resources. 
Payment hub functionalities real-time reporting

Real-time reporting
Real-time visibility into cash flows, transaction statuses, and payment reconciliation for informed decision-making. 

Payment hub functionalities scalability
Scalability
Scalable solution that can accommodate growing transaction volumes and support business expansion. 
Payment hub functionalities user-friendly interface
User-friendly interface
Intuitive and easy-to-use interface that requires minimal training for staff members. 
Payment hub functionalities customization options
Customization options
Flexibility to customize workflows, approval processes, and payment configurations to meet specific business needs. 
Payment hub functionalities customer support
Customer support
Access to responsive customer support and ongoing updates and maintenance to ensure smooth operation of the payment hub.

 

Enhanced control and visibility via centralized payment systems

Centralized payment systems provide a single view of all cash flows, making it easier to manage liquidity across different jurisdictions, currencies, and banking relationships. This holistic view is crucial for making strategic decisions and ensuring the organization's financial health.

Centralized payment systems bring efficiency into cash management

Centralized payments streamline processes, reducing the time and effort required to manage multiple payment systems. This leads to significant improvements in efficiency and cost savings, as well as the ability to optimize working capital by minimizing idle cash reserves.

Centralized payment systems bring data and analytics to decision-making

Centralization enhances the ability to collect and analyze data. With comprehensive data and analytics capabilities, organizations can make better-informed decisions, gain real-time insights into cash positions, and identify transaction trends that inform strategic planning.

Central control vs. local autonomy: payment processes and compliance

While payment centralization is key to more secure and strategy-aligned payment operations, cash managers and treasurers must strike the right balance between central control and local autonomy. Centralized payment systems enhance efficiency, reduce costs, and improve security by providing a unified platform for managing cash flows. However, achieving compliance in cross-border and cross-jurisdiction business operations requires a degree of local autonomy to navigate regional regulatory landscapes and specific market conditions.

"Control and visibility are paramount, aiding in better cash management, informed investment decisions, and reducing idle cash." - Jukka Heikkinen

By allowing local units some flexibility within a centrally controlled framework, organizations can ensure adherence to local regulations while maintaining overall strategic alignment and operational efficiency. This kind of balanced approach enables firms to leverage the benefits of centralization, such as improved visibility and data analytics, without sacrificing the agility needed to respond to regional demands and regulatory requirements.

Businesses need their payments centralized – but how?

Imagine you're a treasurer tasked with centralizing your corporate payment infrastructure: you’ve got your work cut out for you. You must navigate the complexities of integrating diverse payment systems across multiple regions while ensuring compliance with local regulations and maintaining the flexibility to address region-specific needs. Maybe you don’t have to imagine. Maybe you have to act and act now.

Tailored approaches

While the need for payment centralization is clear, the approach must be tailored to fit organizational needs. Common goals include enhanced security, cost reduction, and improved cash flow control. However, each organization must navigate the complexities of training, change management, and standardization, addressing potential resistance by laying out a clear path and benefits of centralization.

Overcoming resistance

Resistance to change is natural, especially when it involves revamping established processes. Clear communication of the benefits, along with a strategic implementation plan, can help overcome this resistance. Engaging stakeholders early and providing adequate training can also facilitate smoother transitions.

Technology alignment

Whether integrating innovative technologies to support existing processes or reimagining processes to align with new technologies, the deciding factor remains the same: the organizational goals. The pace of technological change should align with the organization's strategic objectives, ensuring that the centralization efforts are both feasible and beneficial.

The risks of waiting for tomorrow (that might never come)

Looking to the future, it's essential to stay informed about emerging trends and technologies. However, a cool head is necessary to consider both the broader implications and what is achievable now. Incremental changes in the technology stack or diving headfirst into the latest trends must be balanced against the organization's goals, timelines, and capacities. Waiting indefinitely for the perfect solution can result in missed opportunities and increased vulnerabilities.

Your roadmap to payment centralization success

As the business landscape evolves, your payment processing needs will evolve too. Centralized payments support operations through process improvement, transparency, and compliance, which makes it a business-critical initiative:

Various payment infrastructure components like payment gateways, ERPs, banks, accounting systems surrounding a payment hub.

1. Assess your payment infrastructure 

Payment hub implementation starts with assessing and understanding your current systems, processes, and data flows to see how the payment hub fits in and what integration points are needed. Pay special attention to banks, bank connections and connectivity types that need to be assessed and accounted for. Negotiate with your banks whether they can provide automatic bank statements and at what cost. 

2. Plan your payment hub integration strategy

2. Plan your payment hub integration strategy 

Once you know what’s needed you should determine how the payment hub will interface with existing systems like ERP, accounting, and CRM platforms. Seek guidance from experienced partners if needed. 

3. Payment hub data migration and system configuration

3. Data migration and system configuration 

Cleanse and prepare data for migration, then configure systems to accommodate new payment processes and workflows. 

4. Testing your payment hub

4. Testing your payment hub 

Thoroughly test your new payment system to ensure accuracy and identify any issues before going live. 

5. Go live and monitor your payment hub

5. Go live and monitor your payment hub 

Roll out the payment hub to end-users, provide training, and closely monitor system performance and feedback. 

Payment hub continuous improvement

6. Continuous improvement 

Iterate and improve the payment hub based on feedback and evolving needs, ensuring long-term value and efficiency. 

Request a payment hub demo

Frequently asked questions about payment centralization

Payment centralization is a key initiative to any business looking to streamline their payment processes, improve efficiency, and enhance financial management. 

How does payment centralization impact operational efficiency?
Centralizing payments consolidates fragmented processes into a unified platform, reducing manual intervention and errors associated with decentralized systems. This efficiency improvement leads to faster transaction processing times, standardized workflows, and the ability to leverage economies of scale across payment operations. Ultimately, it frees up resources that can be redirected toward strategic initiatives rather than administrative tasks.
What challenges should organizations anticipate when implementing payment centralization?
Implementing payment centralization may face challenges like resistance to change from decentralized units accustomed to autonomy, varying regulatory requirements across different regions, integration complexities with existing IT systems and ERP platforms, and the need for robust change management strategies. Addressing these challenges requires careful planning, stakeholder engagement, and a phased approach to implementation to minimize disruptions and ensure smooth adoption.
How does payment centralization support compliance in cross-border operations?
Payment centralization facilitates compliance in cross-border operations by providing a centralized framework to enforce uniform policies and procedures that meet regulatory requirements across different jurisdictions. It allows for better monitoring and reporting of transactions, ensures adherence to international standards for financial transactions, and enhances transparency in financial operations. By centralizing payment processes, organizations can mitigate compliance risks and maintain consistency in regulatory adherence across their global footprint.
How can organizations measure the ROI of payment centralization?
Measuring the return on investment of payment centralization involves evaluating both quantitative and qualitative factors. Quantitative metrics may include cost savings from reduced transaction fees, decreased processing times, and optimized cash flow management. Qualitative benefits can include improved risk management, enhanced strategic decision-making capabilities, and increased stakeholder confidence. Organizations may also assess ROI by considering intangible benefits like better supplier relationships and enhanced brand reputation resulting from smoother and more reliable payment processes.
What considerations should organizations evaluate before deciding to centralize their payment operations?
Before centralizing payment operations, organizations should consider factors like their global footprint and the diversity of their business operations, the complexity of their existing payment infrastructure, the scalability and flexibility of potential centralized solutions, the level of control versus autonomy required by regional offices, cost implications including initial investment and ongoing maintenance, and the availability of skilled resources to manage and support centralized operations.

 

Payment centralization matters

Centralizing payment operations offers significant benefits to corporations from enhanced control and visibility to improved efficiency, and better data analytics. For organizations willing to embrace this shift towards a more controlled and eventually accountable approach to payments, the rewards include not just operational improvements but also strategic advantages that position them for future success. The key is to act with purpose and clarity while aligning payment centralization efforts with broader organizational goals and remaining adaptable to changing circumstances.

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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