Question

Explain the Payment Factory concept.

Answer 1

A payment factory is a flow instrument for improving payment control and performance. The basic idea is to centralize payments in a single mechanism for all or most operating entities. Shared Service Centers (SSCs) are payment factories. Payment factories are data-intensive and process-intensive so they require operating systems. The most common solutions use the features of ERP or TMS, or a combination of both. Many payment service providers often protect the features of factory payments.

Payment factories have developed from processing payments (such as a mutual payment gateway), to processing invoices (which allow for further efficiency and better control and greater savings), to payments on behalf of operating entities (IHB).

The basic payment factory is more like a mutual payment gateway; for further transmission to banks operating entities send their payment files to the gateway. As much of the production is still decentralized, this does not provide much profit. Additionally , cloud technologies allow businesses to gain any visibility and control benefits these gateways offer, so the simple payment factoryis version is not popular any more today.Processing the volume of invoices gives the company greater power and greater value. This form of payment factory collects accounts payable data from the operating entities, processes the resulting payments, and returns accounting entries to the operating entities so that the invoices in their ledgers can be accurate. It offers much greater value and provides the basis for centralisation to be paid for in complete procurement.

Invoice-driven payment factories often give remittance advice to sellers thereby speeding up reconciliation and invoice clearing at the seller. The first stage of invoice level payment factory is that the payment factory uses an attorney's control over bank accounts of the operating company to make the actual payments to the vendors, usually once a week. The payment factory acts as an instructing payment agent over the bank account of the operating entity.

The second stage is that the payment plant aggregates invoices from various operating agencies and makes one single payment to specific vendors on their behalf. This is reimbursement by the operating agencies on behalf of (POBO). Many payment factories switch from production at invoice level to executing payments on behalf of operating entities; this is the same as IHB 's payment part.