Abandoning a process that pays?
In the treasury world, autumn seems to be the season for conferences and user group meetings. I have spent much of my time over the past few weeks on the road attending different conferences.
The latest of them – EuroFinance took place in Barcelona last week. The three day show was filled with presentations and meetings.
Of course, at a conference centre full of cash and treasury managers the words credit crunch, risk management, bankruptcy, and liquidity crisis were uttered repeatedly, and there was hardly a session where the economic crisis and the falling of banks wasn’t discussed or mentioned.
I only managed to attend a few of the many interesting sessions. But I was surprised, with so much topical matter on hand, that many sessions were really outdated. For example there were sessions about the benefits payment factories featuring content that hasn’t changed for years. I am sure that you would have been able to see the same presentation at EuroFinance five years ago.
Payment factories have been around for more than ten years now and there is a very clear benefit from them so it amazes me that there are still a large number of big companies out there that don’t have them.
They offer a cost saving on bank connectivity and increased leveraging towards the banks, while eliminating cross border payment and making it easier to net internal payments. On top of this, there are security benefits as fewer connections can be made better and more secure.
However, the biggest benefit usually comes with the in-house bank that is often incorporated with a payment factory. Here you get the benefit of netting off one subsidiary’s investments with another subsidiary’s borrowings which can be very substantial.
During the conference, I talked with a company that has now decided to reverse this trend. For years, they have been running an efficient payment factory and in-house bank. Now, after a major re-organisation they are closing down the payment factory and are considering letting subsidiaries connect directly to the bank and let intercompany payments be settled via external bank accounts.
Admittedly, they will keep the in-house bank and pool all balances to central accounts owned by the HQ, and this will allow them to retain one of the biggest benefits though pooling. I really don’t understand their new approach and don’t see where the benefit is. Although there was not enough time for me to understand their reasoning, surely it is a mistake for them to reverse the model they have been using successfully over the years.
Payment factories and in-house banks are often organised as service centres and EuroFinance featured some informative sessions on how different companies have approached service centres and how to organise them.
The discussions were not just about payment factories, but in general. There was a great discussion on whether firms should adopt the dialog or the dictatorial method when rolling out shared service centres. Centralisation causes friction with the subsidiaries so how you approach it is important.
Both Annette Owen, Global Cash & Banking Manager at British American Tobacco and François Masquelier, SVP Head of Treasury and Corporate Finance at the RTL Group were more in favour of the dialog approach.
Annette made the point that if you sell it right the business units will buy into the idea. Hans van den Bosch, Head of Treasury Operations at Unilever however represented the other idea of a more top-down approach, even though he added that treasury has to be the buffer between the CFO’s ideal ideas versus the reality in the subsidiaries.
Finally, Ben Fletcher, EMEA Treasury Banking Manager, Procter & Gamble gave a presentation of how P&G approaches the shared service centre. They clearly use the top-down approach to the extreme with no exceptions when they roll out their shared services centres for example to newly acquired subsidiaries.
There is no doubt that shared service centres today add a lot of value to corporates. Previously technology may not have been available to make the centres work well, but technology is no longer the stumbling block.
It has more to do with the individual company’s mentality than anything else. Companies that have gone down on the road of introducing shared service centres now find that subsidiaries start asking for more services from the centre whereas they in the beginning may have resisted giving up business processes to the centre.
