Why Treasuries Push Payment Centralization

Centralization is the new mantra in many treasuries, ranging from cash to risk and payments management. In a recent Reval survey of more than 200 finance professionals, 73 percent of respondents say that they have taken initiatives to centralize control in payments management. Today, most companies are working with a few global bank partners or with a main bank and a network of local bank partners.

Still, centralization has not reached its limits yet, as 70 percent of survey participants see this trend continuing in 2015. Looking at corporate treasurers´ plans for the next twelve month, they plan to:

  • Reduce the number of bank partners (28%)
  • Reduce the number of bank accounts (42%)
  • Increase centralization e.g. with a payment factory or shared service center (65%)
  • Invest in technology e.g. treasury management system (68%)

But why is centralization top of mind for treasurers today?

Global Growth Strengthens Corporate Treasuries

There are two trends driving centralization. First, we see M&A activity at a seven year high. This means, many treasurers are challenged to combine two entities into one and agree on common structures and processes. Second, many companies are starting to operate outside their domestic markets, requiring more global treasury organizations.

Under increasing competitive pressure, companies grow fast and global, and treasuries commonly establish strong corporate functions and standardize structures, processes and policies. Moving to lean, central organizations does not only increase transparency, efficiency and control, but can also help to save money.

Let´s review the benefits of centralizing payments management in more detail:

  • Increase cash visibility through centralizing bank account management and streamlining bank connectivity
  • Increase payment efficiency through standardizing and automating end-to-end payment execution as well as aggregating and optimizing payment flows
  • Increase workflow control through documenting processes within an enterprise-wide signatory and approval framework and executing through security-enabling technology
  • Reduce cost through bundling payments, optimizing transaction formats, payment channels and the share of wallet with your bank partners

Looking at these advantages, you will probably want to know how leading organizations approach their centralization project.

Central Treasuries Need Central Technology Platform

Technology plays an important role in treasury and payment centralization. According to the survey, one out of two treasurers is planning to invest in payment technology in the next twelve months.

The advantages of technology are numerous. Global teams that work together on a single platform can handle payments with more sophistication and collaborate to reach their business and efficiency goals. Cloud-based treasury management systems can help them to:

  1. Make bank accounts and bank activity transparent across the enterprise
  2. Automate payment workflows and bank connectivity
  3. Manage the share of wallet with their bank partners
  4. Optimize payment costs through payment factories, multi-lateral netting or in-house banking
  5. Scale with their global business operations

Fast growth into foreign markets pushes centralization in many treasuries. When establishing a strong corporate treasury function, payments processes are centralized as well. Naturally, technology investments go hand in hand with payment centralization, as technology can help to increase visibility, efficiency and control, while reducing payment and operational cost at the same time.

For more details on the Reval survey take a look at our infographic or our results presentation.