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:
Robust software to handle large transaction volumes
Ability to accept incoming payment information in many formats
Inbound document digitization
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:
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
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:
Expensive software and related systems. These installations can be extremely expensive, putting them out of reach of smaller organizations.
Takes payment control away from subsidiaries. Instead, the headquarters staff has control over whether payments will be made.
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.
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.