Payment factory definition
/What is a 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:
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Robust software to handle large transaction volumes
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Ability to accept incoming payment information in many formats
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Inbound document digitization
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Workflow management system to handle document approvals
Related AccountingTools Courses
Optimal Accounting for Payables
Advantages of a Payment Factory
The system has the following benefits:
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Better prediction of cash outflows for centralized cash forecasting
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More efficient payables processing; easier to install best practices in a single location
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Can realize greater returns from acquisitions, since an acquiree's payables function can be shifted to the centralized system
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Higher volume with fewer banks, resulting in lower transaction fees
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More control over when cash outflows occur
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Netting of payments between subsidiaries
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Route payments through in-country accounts to avoid foreign transaction fees to suppliers located outside the country
Disadvantages of a Payment Factory
A payment factory is subject to a number of problems, which must be explored before installing the system. They are as follows:
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Expensive software and related systems . These installations can be extremely expensive, putting them out of reach of smaller organizations.
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Takes payment control away from subsidiaries . Instead, the headquarters staff has control over whether payments will be made.
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Terminates some banking relationships that may have been in place for years . This can be a major problem when the subsidiaries have independent finance departments that have been accustomed to making their own banking arrangements.
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Workflow management of approvals must be accessible in all participating subsidiaries . This can be an issue when online linkages are questionable, which can be the case when subsidiaries are located in emerging markets.