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Using Multi-lateral Netting system as the starting point for a Vendor Payment Factory

Nick Dadswell - Director, Finance Business Services at Invensys plc - in his presentation at the CoProcess User Group Meeting last month, described how they used the CoProcess multilateral netting system, which they had used for inter-company netting for 10 years, as their starting point for the development of their vendor payment factory. This meant that there was no system change for the users and also there were the ERP interfaces in place. Plus they already used CoProcess netting for third-party payments

Invensys's main objectives in setting up the payment factory were to: obtain more control over their cash management, take advantage of SEPA and combine this with moving to SWIFT connectivity.

Payment Factory Set Up and Payment Flows
The structure and flows in the Invensys Payment Factory are shown below:

Source & Copyright©2012 - Invensys

Invensys started the roll out of the payment factory by focusing on Europe and North America and on GBP, EUR, USD and AUD. The banks were asked to tender for each currency. The payment factory uses XML messages for the payment instructions which are sent, via SWIFT, to the local banks to make the payments. All international payments are, effectively paid locally at a domestic tariff, see figure below.

Invensys Payment Factory Payment Flows

Source & Copyright©2012 - Invensys

Invensys are currently expanding the payment factory currencies, adding CAD, SGD, CZK, CHF, NOK, DKK NZD. And will be extending the coverage to Latin America and MXN. They are also looking at adding cheque payments via an outsourced XML file to cater for the US market.

Benefits
Invensys believe that the main benefits of the Vendor Payment Factory have been a reduction in manual processing, increased security and compliance, reduction in transaction costs, more effective cash utilization and independence from their banking partners. Furthermore, implementation was made much easier by using the existing netting system which was well known to the users.


If you already have a well-established multi-lateral netting system or service, it can be an effective starting point for development of a vendor payment factory.

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This item appears in the following sections:
Cash Flow Management & Forecasting
Payment & Collection Factories