Corporate treasurers know the importance of payments efficiency; risk, liquidity, expenses, governance, and capital structure are all impacted by how efficiently a business manages its payables and receivables. The goal is to reduce risk, improve cash flow and reduce operating costs. The firms that get it right treat the effort as a journey and focus on the principles and tools necessary to get the job done. Let us briefly look at the principles of payments efficiency and some of the tools useful for putting them into effect. Here, in ascending order of importance, are some of the key principles of payments efficiency:
- Remove paper: Actually, not just paper—eliminate those processes and technologies that require or generate paper such as faxed documents and signature requirements. For most of these requirements, online or digital workflows are not only more efficient, they are more secure.
- Automate: Any payments activities that add little value and are low risk should be automated. Even better, why automate when you can eliminate? Eliminate what is not essential and automate the rest.
- Straight-through-processing: In the treasury context, STP is the elimination of unnecessary gaps between processes and systems. STP can be accomplished by linking systems and processes so that one action triggers another (with appropriate controls and safeguards) and the process can be viewed in its entirety.
- Cash flow visibility: Cash flow management across all currencies and jurisdictions is a crucial issue for large and small businesses. As payments activity crosses borders and currencies, tracking cash flows becomes more complicated and more critical. Cash flow maximization: Utilize payments terms offered by suppliers and encourage clients to user-preferred payment methods and to pay sooner. (who is the client and who is the user?)
Consider a specific use case to illustrate the appropriate tools to implement these principles.
Cross-border payments carry all the promise and peril of domestic payments and more:
• More risk
• Larger cash-flows
• Higher transaction costs
• More complexity
What should a treasurer look for in a cross-border payments platform?
Undoubtedly, the first item to look for is FX integration.
Integration between FX, payments, and deposits systems is the foundation of cross-border payments efficiency. This integration allows firms to perform FX transactions on their terms, timing, and price. Specifically, a firm can capture attractive FX rates and seamlessly match these trades to its foreign payment requirements via forwards, time options (aka: window forwards), foreign currency deposits and even split delivery.
Benefits of FX Integration
1) FX Savings: Without integration, firms must either separately execute their FX transactions and then transfer FX flows for their payments as they arise or pay in domestic currency and leave the FX transaction to someone with much less incentive to capture a reasonable FX rate. FX risk exists in both scenarios, so the real choice is between uncovering and managing that risk or leaving it unknown and unmanaged. The latter choice can easily cost 1% or more of foreign payables.
2) Visibility: Users can follow cash flows across currencies and see the domestic source of a foreign currency payment or the reason for an FX transaction.
3) Harmonization: Entitlements, separation of duties, and risk management for FX and payments can be created and maintained in a single platform.
4) STP: Integration also facilitates straight-through processing for FX transactions and cross-border payments: transactions can flow automatically between domestic funding and foreign currency delivery without manual intervention or switching platforms.
FX integration goes a long way, but cross-border workflows are needed to finish the journey. These are workflows designed to take advantage of FX integration and bridge the functional gap between domestic and cross-border payments. Cross-border workflows allow users to execute a payment before, after or independently of an FX transaction. Individual users can be streamed into the settlement flow (pre-trade, post-trade, payments-first) best suited for their processes. For users, this means that they can create and manage payments on their terms rather than work around the limitations imposed by most payment platforms.
Benefits of cross-border workflow
1) User experience: effective workflows bridge the gap between domestic and cross-border payments. Users with little FX experience can create payments with ease and confidence.
2) Template payments: Users can template payments with FX for future or recurring transactions and fund those payments with the most effective FX product and tenor.
3) Improved payment timing: Payment timing—a common concern for treasurers—can be improved with payment cut-off inclusion at the time of FX trade entry. This gives FX traders the information necessary to align FX value date with payment cut-off times so that payments are received on time and no sooner than necessary.
4) Splits and netting: Lastly, payment and funding transactions can be split or netted as desired to reduce transaction entry work and manage cash-flows across all currencies. FX integration and cross-border workflows form the basis of an efficient and effective FX payments experience. TickTrade’s FX and global payments platform is built from the ground up around these crucial capabilities and with them, we can help your clients on the journey to payments efficiency.
FX integration and cross-border workflows form the basis of an efficient and effective FX payments experience. TickTrade’s FX and global payments platform is built from the ground up around these crucial capabilities and with them, we can help your clients on the journey to payments efficiency.
Director of Product Management, Payments