The payment factory

A payment factory is an accounts payable function that has been centralized for an entire organization. This is an improvement on a distributed payables system, which incurs more administrative costs to ensure that multiple payables systems are properly managed.A payment factory may have the following features:

  • Robust software to handle large transaction volumes
  • Ability to accept incoming payment information in many formats
  • Inbound document digitization
  • Online form for supplier entry of invoices
  • Workflow management system to handle document approvals

The system has the following benefits:

  • Better prediction of cash outflows for centralized cash forecasting
  • More efficient payables processing; easier to install best practices in a single location
  • Can realize greater returns from acquisitions, since an acquiree's payables function can be shifted to the centralized system
  • Higher volume with fewer banks, resulting in lower transaction fees
  • More control over when cash outflows occur
  • Netting of payments between subsidiaries
  • Route payments through in-country accounts to avoid foreign transaction fees to suppliers located outside the country

However, a payment factory also has the following problems, which must be explored before installing the system:

  • Expensive software and related systems
  • Takes payment control away from subsidiaries
  • Terminates some banking relationships that may have been in place for years
  • Workflow management of approvals must be accessible in all participating subsidiaries (if approvals are required)