From the November/December 2012 issue of Treasury & Risk magazine

Tackling Global Payment Challenges: Achieving Efficiency While Managing Costs and Risk

Ebru Pakcan, Head of Global Payments; Sayantan Chakraborty, North America Payments Head Citi Transaction Services

As more and more corporations pursue global expansion objectives, treasury and finance professionals are under increasing pressure to achieve improved efficiencies in cross-border payment and collection activities. Treasury must deal with the many challenges of globalization, such as opening and maintaining a growing number of bank accounts as worldwide supplier networks expand.  In addition to the higher costs associated with cross-border payments, treasury also faces a lack of visibility and control when managing multiple banking relationships.

Further challenges include the potential for lost or truncated payment information as payment messages are relayed between banks, which in turn makes reconciliation more difficult.  And, as businesses are compelled to maintain a growing number of foreign currency accounts, treasury must deal with increased exposure to foreign exchange (FX) risk, as well as the costs related to making supplier payments in different currencies.  As business models change to adapt to global priorities, innovative cross-border trade solutions have emerged that can increase efficiency and control, while mitigating risks.  

Citi Transaction Services is uniquely capable of supporting the cross-border payment needs of corporations with global aspirations.  With an extensive global payment network and industry-leading solutions, coupled with the bank’s unparalleled payment expertise, Citi has the proven capabilities to facilitate cost-effective payments around the world.  

Bringing centralization and automation to cross-border transactions

One of the key drivers of both operational and cost efficiencies is the degree of automation in the payment execution process. For example, best-in-class companies often rely on ERP systems, shared services centers, and direct connectivity to their banks to increase automation along their entire payment initiation and execution continuum. These forward-thinking organizations leverage technology and electronic file exchange capabilities to boost straight-through processing (STP), from the time payment details are entered into their payables systems until payments are sent to beneficiaries.

However, even for treasury organizations that have achieved best-in-class centralization and automation rates for domestic payments, many continue to rely on manual processes for cross-border transactions.  Manual processes tend to result in poor data quality, which reduces STP rates, which in turn creates an increase in overall costs and additional downstream inefficiencies, errors and other issues.  While shared service centers can be an important part of an effective payments centralization strategy, they cannot eliminate all of the issues surrounding cross-border and international payments.

In order to mitigate cross-border payment challenges, organizations would be well served to work with a global provider such as Citi to achieve greater automation in their international payments.  Treasury should view their payment provider as a key resource when it comes to identifying and employing best practices for making these payments. Citi’s payment processing platform and capabilities provide one-stop ease and convenience for local and foreign currency transactions. 

By relying on Citi’s extensive global network, organizations can reduce the costs of correspondence fees, as well as concerns over the accuracy of data associated with correspondent banking.  Because most payment instructions are transmitted over the bank’s extensive branch network, organizations can feel comfortable that data is complete. 

Citi’s global network also enables treasury and finance professionals to conduct cross-border payments through a single channel and a single file, regardless of the format or currency used.  Once the bank receives the file, payments are issued locally.  Citi’s WorldLink® Payment Services allows organizations to issue payments in 135 currencies.  This powerful solution makes it possible to issue global payments without opening accounts in multiple currencies, which mitigates currency risk.  It also simplifies account structures and reduces the burden of managing multiple accounts globally. 

Dealing with market liberalization and currency deregulation

In the past, many organizations avoided many of the thorny challenges of international payments by issuing supplier payments in U.S. dollars or other major currencies such as the Euro. This strategy is proving less viable as a result of growing market liberalization and currency deregulation around the world, particularly in emerging market regions such as Asia and Latin America.

Organizations engaging in import or export business in countries like China must now be able to conduct trade in local currencies, such as RMB.  This adds to the challenge for treasury, who must continue to maintain a controlled and efficient payment environment

Changes to the regulatory landscape, such as the move to SEPA (Single Euro Payments Area) mandated throughout the Eurozone by 2014 will result in new payment challenges. While SEPA regulations promise to eliminate the need for cross-border payments on trade within the region, organizations operating outside of the zone will have to explore new ways to make payments to these countries that will deliver the greatest efficiency and the lowest cost.

As organizations continue to look to expand business internationally, Citi’s unparalleled expertise, extensive global network and innovative payment solutions can help them meet changing market demands. Citi is uniquely qualified to assist organizations as they pursue ambitious growth objectives, without sacrificing goals for centralization, efficiency and cost containment. 

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