Cash Management: A SourceHOV White Paper

Transcription

1 Cash Management: A SourceHOV White Paper Introduction SourceHOV defines cash management as: the processing of incoming payments and invoices ensuring that exceptions, errors, omissions and delays are removed from the account posting and downstream customer service functions. This white paper discusses the importance of effective cash management for organisations across multiple industry sectors, explores current market trends and highlights key issues. It then outlines SourceHOV capabilities in cash management services for clients. The paper is divided into four sections: 1. The importance of effective cash management 2. Cash management trends 3. Issues in cash management 4. SourceHOV cash management capabilities

2 1. The Importance of Effective Cash Management Cash management is a key function which impacts multiple operational processes and stakeholders. Effective cash management delivers several financial and non-financial benefits to organisations across industry sectors. Financial benefits include improved cash flow, stronger balance sheets and reduced banking charges. Non-financial benefits include an increase in customer satisfaction, reduced customer churn and improved compliance with regulatory requirements. Table 1 shows the impact of effective cash management on stakeholders across a typical organisation: Table 1: Cash Management Impact Matrix Factor Organisational Importance Stakeholders Impacted Managing cashflow Cost of cash management process as a business process Time taken to manage exceptions, errors & queries from customers Impact on cash payment cycles Impact on cash holding position Impact on banking & interest charges Impact on Balance Sheet strength Impact on credit rating Ability to offer improved terms to customers in return for prompt or early settlement of invoices outstanding Ability to generate funding by invoice-based financing Direct operational overheads (staff required to manage cash) Indirect operational overheads (for example, IT, banking, premises, security & courier charges) Comparative costs required to manage growing channels (e.g., mobile payments) and/or declining channels (e.g., cheques) Overheads required to manage exceptions, errors & queries Impact on cashflow of provisions or adjustments for errors Internal: finance department External: shareholder External: customers Internal: finance function External: supply chain Internal: finance function Internal: Customer service function External: actual customers Maintaining high standards of customer satisfaction Gaining improved customer & market insight Reputational impact of dissatisfied customers (e.g., complaints and feedback on Social Media) Customer churn and lost sales opportunities (if a commercial organisation) Using cash management data to gain improved insights into customer behaviour & market positioning Internal: customer service function External: actual customers External: potential customers Internal: sales & marketing function Ensuring regulatory & tax compliance Regulatory requirements impacting cash management processes (e.g., anti-money laundering & sanctions screening requirements) Identifying & avoiding fraud Ensuring compliance with tax requirements (e.g., VAT & import/ export tariffs) & cross-border requirements Internal: finance function Internal: legal function Internal: fraud function External: regulatory authorities (e.g., Financial Conduct Authority) External: tax authorities & government departments (e.g., HM Revenue & Customs)

3 2. Cash Management Trends SourceHOV has identified three key trends in cash management: 1. The diversification of payment channels 2. Increased regulatory scrutiny 3. Technology innovation Each trend is summarised below. 2.1 The Diversification of Payment Channels Payment channels have significantly diversified in recent years, leading to an increase in payment channels and the introduction of new electronic channels for both consumers and businesses. The traditional method of payment by cheque declined by 13% from Cheques are themselves also being transformed as a channel in the UK through the industry-wide Image Clearing initiative, with digitisation removing the need for physical originals of cheques to be exchanged between banks 1. Tables 2 (summary view) and 3 (detailed view) below show how traditional cheque and paper-based payments have declined in the UK to be replaced by electronic transactions (BACS, CHAPS and Faster Payments) based on industry data from Payments UK 2. Faster Payments as an electronic payment channel category in contract increased by 13% from , while cheque payments declined by the same amount 3. Table 2: The Growth and Diversification of UK Payment Channels Inter-Bank & Inter-Branch Transactions (Summary) 4 Inter-Bank & Inter-Branch Transaction Type (see notes): Growth or Decline BACS 5,841,232 6,080,043 4% CHAPS 36,521 37,548 3% Faster Payments 1,100,930 1,247,035 13% C&CCC (Cheques) 499, ,273-13% Total 7,477,967 7,796,915 4% 1 For more information see: 2 BACS: Bacs Payment Schemes Limited is responsible for the schemes behind the clearing and settlement of UK automated payment methods Direct Debit and Bacs Direct Credit, and managed services for third parties. See CHAPS: The Clearing House Automated Payment offers same-day high value sterling fund transfers. See Faster Payments: the UK s 24/7 real-time payment service. See C&CCC: the Cheque and Credit Clearing Company manages the cheque clearing system in England, Wales and Scotland. See 3 The British Banking Association The Way We Bank Now: Help at Hand, p.6. 4 Payments UK Annual Summary of Payment Statistics 2015, p. 3.

4 Table 3: The Growth and Diversification of UK Payment Channels Inter-Bank & Inter-Branch Transactions (Detail) 5 Inter-Bank & Inter-Branch Transaction Type Growth or Decline BACS: Standing Orders 18,678 19, % BACS: Direct Credits 2,150,557 2,152, % BACS: Direct Debits 3,671,997 3,908, % CHAPS: Retail and Commercial 28,689 29, % CHAPS: Wholesale Financial 7,833 8, % Faster Payments: Standing Order Payments 329, , % Faster Payments: Single Immediate Payments 609, , % Faster Payments: Forward Dated Payments 159, , % Faster Payments: Return Payments 2,040 2, % C&CCC: Cheques 464, , % C&CCC: Credits 34,962 28, % C&CCC: Euro Debits % Total 7,477,945 7,796, % 2.2 Increased Regulatory Scrutiny Increased regulatory scrutiny has also accompanied the diversification of payment channels. The Payment Systems Regulator (PSR), for example, announced in July 2016 that the UK payments infrastructure needed to undergo reform in order to increase competition to better meet consumer meets. The PSR found that there was no effective competition for the provision of the UK payments infrastructure for the BACS, Faster Payments and LINK services, and is currently consulting the market on proposed regulatory measures 6. Cash management also has a central impact on an organisation s ability to demonstrate compliance with taxation requirements. HM Revenue and Customs expects each individual or business to keep records that allow them to provide a complete and accurate tax return for cash management activities. Penalties for errors due to a lack of reasonable can range from 0% to 30% of the extra tax due, and between 30% and 100% of the extra tax due for deliverable and concealed errors. In addition, organisations can be liable for a failure to notify penalty, based on the amount of tax or duty that is unpaid as a result of failure to notify HMRC 7. 5 Ibid. 6 Payment Systems Regulator PSR MR15/2.3 Final report: market review into the ownership and competitiveness of infrastructure provision, pp Retrieved 12/09/16.

5 2.3 Technology Innovation Effective cash management is reliant on technology platforms for the management of payment processing, exceptions and customer service activities. Advances in robotics and automation technology can increase the opportunities for organisations to improve Straight Through Processing (STP) and automated transaction rates, reducing processing costs, improving cash cycles and reducing the potential for human error. Customers are also increasingly moving to mobile platforms to manage their everyday activities, receive and pay bills. Industry trends reported by the British Banking Association include: 40,000 mobile app downloads a day in 2015 within the UK, a 25% rise on m Internet banking logins a day in 2015, a 2% decrease from 2014 as customers migrate to mobile apps for banking 250% annual rise in spending using contactless credit and debit cards, with 1.1n spent by UK consumers in March Issues in Cash Management Organisations face the following key issues when considering how to implement effective cash management processes: How do I maximise my organisation s cashflow position? How do I reduce the cost of my cash management function? How do I manage operational peaks and volume fluctuations while maintaining an efficient cost base? How do I manage the diversification of payment channels and the move from paper to electronic banking? How do I reduce the number of exceptions, errors and queries in managing cash? How do I ensure compliance with regulatory and tax requirements? How can I manage international and cross-border payments? How do I ensure my IT platforms can manage new and emerging payment technologies (such as mobile apps)? SourceHOV has designed a cash management service to address these issues and which is outlined in Section 4 of this White Paper. 4. SourceHOV Cash Management Capabilities SourceHOV provides comprehensive technology based services to streamline the allocation of incoming payments and invoices 9. For one leading utilities company in the UK, for example, SourceHOV processes an annual total of 29 million electronic payments and 400,000 paper cheque remittances across 22 cash management channels. Figure 1 - SourceHOV Cash Management High-Level Service Architecture Cash BACS Faster Payments Cheque Mobile PayPal & Web SourceHOV Cash Management Service Unified Payment File Enhanced Processing SLAs Reduced Exceptions & Queries 8 The British Banking Association The Way We Bank Now: Help at Han., p For further information on SourceHOV s cash management capabilities see:

6 Key features of our cash management capabilities as summarised in Figure 1. These include: Omni-channel: the service platform is a true omni-channel environment allowing customers to deliver payments through the channel of their choice. This includes third party payments as well as direct receipts. Process Automation: significant advancements have been made in process automation through the use of our enterprise class business process management solution, together with proven robotics to get the correct payment to the correct amount without manual intervention. Availability and Reliability: the service is hosted in dual, high availability data centres within the European Union. The service is classed as mission critical and our clients benefit from this level of assured processing. Accreditations: we have over 40 years experience in providing payment processing systems and services. Our operation is secure. We are ISO 9001 accredited, ISO compliant and registered under the Data Protection Act. SourceHOV is also a BACS accredited bureau. Certainty and Proof of Process: we combine sophisticated workflows, application integration and underlying audit tracking to deliver not just the certainty that all transactions correctly flowed through the system, but also the evidence of all robotic and human decisions and interactions that have been made with every individual transaction. Scale and Capacity: the service has the scale required to support clients with very large customer bases who process millions of transactions each month. Clients who use our services in the UK have between 250,000 and over 10 million end customers. As part of our cash management outsource for the leading utilities client, for example, we ensure that all payments are allocated to the correct customer account and manage exceptions and queries. We have direct links to the utilities company s accounting systems to carry out payment investigations and have configured our transaction management platform to manage all suspense accounts and all returned unpaid payments. SourceHOV also liaises with the owners of the payment channels (including banks, the Post Office and the UK Government Department of Work and Pensions) on a daily basis and has direct contact with the client s corporate customers to manage payments queries. Our IT infrastructure is classed as being mission critical by the client; we are the only route for the utilities company to receive its cash. For Further Information If you would like to know more about SourceHOV s cash management capabilities, please visit our website at or contact us through the online contact form at SourceHOV LLC. All Rights Reserved. sourcehov.com