Real-time payments and technologies provide a two-edged sword for corporate treasurers.
Real-time payments and technologies can accelerate order-to-cash and working capital cycles, improving cash flow management. However, the transition from a typical five-day work week to a 24/7 week creates a visibility and risk gap. If treasurers can’t monitor cash in real time, they can’t manage any associated risks and liquidity implications.
“When you have a real-time payments world, forecasting becomes so much more important; because you need to actually know that you have the money,” says Andy Schmidt, global industry lead for banking at IT and business consulting services firm CGI. “You don’t have the two-to-three-day float that you used to; and when it’s 24/7—a payment could go out on Sunday afternoon, and you could be overdrawn until Monday morning.”
According to Ben Ellis, global head of Visa B2B Connect, real-time payment opportunities are numerous.
“Perhaps the most important opportunity in an environment of rising interest rates is the ability for businesses to manage cash flow and liquidity better,” he says. “When payments need to be made during traditional bankers’ hours, it limits what you can do. If the funds are not in the account by the end of the business day, they cannot be used. With 24/7 payments, there is more flexibility to better manage payments and funds—particularly deadlines, ultimately enhancing buyer and supplier relationships.”
The data-rich ISO 20022 messaging format lets users pair invoices with payments—helping treasurers better manage their payables and receivables while improving liquidity and cash forecasting, notes CGI’s Schmidt.
Still, he fears many are held back by their inability to implement change, either from a lack of technical and steering space capability or because the needed changes are not given sufficient priority. “Aside from the ripple effect and tide of unintended consequences that are inevitable when changes occur within existing processes,” Schmidt says, “ERP [enterprise resource planning] vendors and treasury management system vendors all need to start supporting ISO 20022. It’s a missed opportunity and will become squandered if the support doesn’t improve.”
Meanwhile, corporate treasurers expect banks to offer flexibility and transparency, which lets them execute and track transactions seamlessly across payment rails.
“They expect banks to support them in realizing the benefits of ISO 20022 through increased information sharing and to minimize the historical friction associated with cross-border payments,” says Merten Slominsky, vice president and managing director for Europe, the Middle East and Africa at Finastra. “Through better-quality payments data from ISO 20022, financial institutions can let corporates manage their cash and working capital better.”
Real-time payment rails enable faster collection and settlement times while improving liquidity management and enabling direct-to-consumer payment flows. Open banking also provides corporate treasurers the opportunity to gain insights from the data generated by increased connectivity with customers—elevating their role in strategic decision-making.
Digitalization has made this possible and brought about the automation of many of the time-consuming challenges of working with manual payment processes. By reducing reliance on manual, error-prone workflows, treasurers can spend more time on data analysis and strategic planning.
The authors of the 2022 Association for Finance Professionals’ Strategic Role of Treasury Survey, carried out with support from Marsh McLennan, found that cash management and forecasting, liquidity planning and payment process improvement remain treasuries’ top priorities while supporting functions like business-continuity and enterprise-risk management.
On the challenges treasurers face, Richard Smith Bingham, executive director at Marsh McLennan Advantage, noted in a prepared statement, “It’s encouraging that treasurers have ridden this volatility as critical partners in their companies’ resiliency efforts and that they are better prepared to help their organizations manage the considerable risks ahead.”
Meanwhile, the authors of treasury and risk consultancy Zanders’ 2019 white paper, The Future of Corporate Treasury, highlight how “treasury is becoming more deeply involved in enabling the digitization and e-commerce strategy that will be at the heart of all enterprises in the future.” Rather than providing “an after-the-fact support function to pick up the pieces,” Zanders says that treasury “must become a real-time business partner offering the insights required at the planning stage to help mitigate the financial risks associated with business expansion into new markets.”
Although the market isn’t there yet, the consultancy recommends that treasurers prepare for a “fully integrated world … where the concept of end-of-day cash management is gone, cutoff times do not exist, real-time value is received, payments are made just in time, and surplus cash is invested automatically for optimum risk/return based on unstructured search engines consuming trusted data feeds.”
A Step Closer
Bacs Payment Schemes (Bacs), the UK’s bulk payments rail, also continues to evolve, enabling payment requests like direct debit to be embedded in places that improve the customer experience. For example, using the Open API module in Finastra’s Bacsactive-IP solution, corporate customers can generate transactions from within Priority Software’s ERP products.
“This payment rail allows the processing of simple, low-volume payments with easy-to-use functionality, including the handling of mission-critical payment operations. This can help overcome scalability roadblocks some corporate treasurers face with high transaction volumes,” Finastra’s Slominsky says.
Integrating new real-time payment rails, and support for Bacs, requires banks to modernize their payment systems. Only then can they offer corporates the flexibility they now demand in adopting different payment models.
Cloud computing and application programming interfaces (APIs) are pivotal in providing innovative payment offerings with increased flexibility, scalability and interoperability. The combination permits companies to handle many transactions without significant upfront investments while offering increased accessibility. Cloud-based systems eliminate the need for on-premises hardware and maintenance, reducing operational costs, argues Slominsky.
“Companies can pay for cloud services based on usage, making it more cost-effective for smaller businesses or startups,” he says. “Through payments as a service, banks can provide instant customer onboarding experiences, reduce operational complexity and costs, increase competitiveness and deliver service innovation. APIs facilitate seamless integration between various payment systems and applications.”
This interoperability ensures a smooth data flow and transactions across multiple systems, streamlining payment processes. APIs empower developers to build custom payment solutions tailored to the unique needs of businesses and customers. Furthermore, “APIs can enable data sharing and analytics, providing valuable insights into customer behavior and payment trends. This data-driven approach allows businesses to optimize payment processes and strategies for better results. It will enable companies to quickly identify suspicious activity and potential fraud attempts as they occur,” Slominsky adds.
Finastra’s Payments To Go is a software-as-a-service, cloud-based solution transforming a bank’s payment offering—helping banks create a flourishing ecosystem around real-time payments and providing scalable payment-processing solutions to help corporate clients grow. “Through the bank’s relationship with Finastra, corporate clients have access to an agile, managed, cloud payments solution with services including cross-border and real-time payments,” Slominsky states.
Corporates are also looking to take greater advantage of embedded finance—to make purchasing and selling as seamless as possible, adds CGI’s Schmidt. “You don’t want the buyer jumping in and out of the website into a payment site.”
Virtual cards are also gaining momentum in business-to-business payments, with reportedly more than 90% of suppliers having a digital payment preference.
“Finance teams consistently aim to reduce the day’s sales outstanding to keep their cash flow healthy,” says Chad Wallace, global head of Commercial Solutions at Mastercard.
The world is moving to a real-time everything age, and treasury is no exception. Everything from payments and collections to foreign exchange conversions and hedges is becoming increasingly instant. However, access to real-time data is paramount as the real world falters. Whether it’s live rate streams from their banks, real-time data feeds via APIs, or utilization of a TMS, continuous visibility and process automation to improve cash visibility and forecasting is the biggest reward of real-time treasury.