‘Matching up’ to corporate requirements

Innovation is exciting. It’s new. It’s fast paced. It brings with it the development of solutions and technologies that can revolutionise customer experiences and brand interactions.

We often hear about this ‘shiny front end’ – new devices, faster speeds, more choice, better service – but seldom shine the spotlight on the infrastructure that must support this progress. This end-user service delivery often forces the same on-demand, real-time expectations onto the suppliers and systems within the ecosystem.

Banking is an obvious example, particularly with the increasing digitisation of payments. The launch of Faster Payments in the UK in 2008 was a game-changing structural reform, allowing quick and secure transfer of funds between accounts at the touch of a button, 24 hours a day. As in other areas of technology – with speed, comes data. Lots of data. As payments become increasingly digital, many businesses are realising the need for a behind-the-scenes process overhaul, to manage the information deluge.

This is a particular concern for large corporations, due to the size and volume of their invoice book. In the wake of the financial crisis, banks have turned their attentions to transaction banking, in a bid to demonstrate their ‘sticky’ client relationships in line with regulatory requirements. However, many banks are still failing their corporate customers, with an outdated, manual accounts receivables process.

Although much of the finance world has moved towards greater automation, the matching and reconciling of invoices remains extraordinarily reliant on human effort. It takes entire teams of people to physically sort through remittance advices, across word documents, emails, excel sheets and PDFs. With 140 characters to identify each payment, it is hardly surprising that the process is riddled with uncertainty and delays, as people sift through paper to understand who each payment is from, how much for, and who to. Inability to track this doesn’t just lead to time delays – it presents a major liquidity issue for many corporations. If they’re not able to pinpoint this information, regulation often decrees that the money must be sent back. Needless to say, this has a significant impact on the corporate’s assets and ability to absorb risk.

But it’s not just regulation that should be driving the overhaul of this process. Transaction banking services to corporate customers provides a rich source of data, and ability to better understand the customer. As the global banking environment becomes more competitive, this insight gives banks an opportunity to price at the optimal level (e.g. invoice factoring), and make proactive product and service suggestions. A bank offering solutions to increase visibility, control and efficiency in cash flow and information management will in turn help its customers to control their working capital and reduce their administration workload. In this way, both the bank and the corporate client benefit from a reduction in unnecessary manual effort, helping free up the finance team and wider business to focus on core and more strategic activities.

The fact that banks must still rely on remittances at all is indicative of an archaic underlying payment infrastructure that is no longer fit for purpose. The introduction of SEPA was designed to simplify payment transfers, which in hindsight, looks like a missed opportunity for a wholesale reorganisation of the banking system. Rather than taking the chance to revolutionise the way remittance information was processed by the bank it was increased to the mere 140 characters we see today. The level of detail found in a tweet is simply too small to transmit the remittance information used by most corporations. Corporates have been forced to use “off system” solutions to control a key part of their cash and liquidity management. In short, it was a failure to look at the whole lifecycle of the transaction, looking at the bank rather than the corporate customer use case.

As banks and corporates alike move into a new era of risk management and competition, failure to address the inefficiencies in the accounts receivables management process is just one example of where innovation will be undermined, if it cannot be supported by the underlying systems.

Real-time automation of these systems is crucial to ensure that matching is performed quickly and accurately and working capital is released in good time. This degree of control and insight will not only identify issues to be rectified, but patterns to be exploited.

Neil Vernon, CTO, Gresham

Image Credit: Shutterstock/Petr Kopka