Merck's effort to standardize its cash management andpayments worldwide by implementing a single global bankinginterface has produced many benefits, says Mark McDonough,treasurer and vice president at the $48 billion pharmaceuticalcompany. But he acknowledges that the process was not easy.

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Before New Jersey-based Merck implemented the global bankingstrategy, the company's “transactional banking activities [were]very much geared to local market needs and local market bankingprocesses,” McDonough says. Advances in technology, as well asMerck's move to a standard global ERP platform and shared-servicesenvironment, paved the way for deploying a single payments fileformat worldwide, an effort that Merck's treasury began to roll outin 2008.

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“What we have done is say to our banks, 'We will give to you asingle payments file,' and the format of that payments file isstandard around the world,” McDonough says. “It can support severaltypes of payments, but it's a standard interface around the world.We present the same interface to our banking partners inAsia-Pacific and to our banking partners in Europe as we do inNorth America.”

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One early challenge “was understanding how complex thatinterface was going to need to be,” he says. “We wanted to makesure we met local banking system needs, but not necessarily caterto all of the different transactions we could have had.”

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Merck also uses a standard format to receive collections.The global banking strategy employs the ISO 20022 messaging formatand relies on SWIFT.

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In Europe, Merck's payments comply with the provisions of theSingle Euro Payments Area (SEPA). The company has yet to adopt SEPAdirect debits, but McDonough says it plans to do so by the February2014 deadline.

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Converting Merck's standing data, such as historical data andinformation on its vendors and customers and their bank accounts,and insuring that it meets the new ISO standards, hasprobably been “the biggest challenge,” McDonough says.

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Asked what advice he would give companies thatare considering a similar effort, McDonough says: “It is a fairlysignificant upfront commitment and investment to move to ISO 20022and to a global standard interface. You have to be persistent inthe beginning.”

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But he adds that as Merck's effort gains “critical mass, we'rebeginning to see the benefits—they're coming through in very largeways now.”

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Those benefits include reductions in Merck's banking fees andcosts. “Especially in foreign exchange, we're able to net out a lotof FX transactions and turn foreign payments into local paymentsand transactions,” McDonough says. “We also get much greatervisibility and the ability to concentrate our cash through theautomation involved.”

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And Merck's subsidiaries benefit by being able to cut back onworkers employed in supporting banking transactions, since most ofthose now flow through the company's banking centers, hesays.

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Of course, cash management and payments aren't the only focusfor Merck's treasury. For example, the company increased itsdividend this year for the first time since 2004, boosting thepayout by 4 cents, or roughly 11%, to 42 cents.

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McDonough notes that Merck this year sees its patent expire onits biggest selling drug, asthma medication Singulair. That's adevelopment that often leads to declining sales, “but we feltconfident in the remaining growth drivers of our business,” hesays. “We felt like it was time to really think about increasingour dividend because we had increased our returns and cash flowover that time and wanted to express confidence in our ability tobring the company through the Singulair patent expiry.”

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Meanwhile, Merck is keeping close watch on Europe's debt crisis.“We continue to monitor the conditions there and the impact onbanks as well as sovereigns,” McDonough says, noting that as ahealthcare company, Merck counts sovereign nations as bigcustomers. “So it creates an extra area of concern and focus forus.”

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See Treasury & Risk's 2012 100 Most Influential Peoplein Finance list here.

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See a slideshow of the finance pros on this year's listhere, and complete coverage of the list here.

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Susan Kelly

Susan Kelly is a business journalist who has written for Treasury & Risk, FierceCFO, Global Finance, Financial Week, Bridge News and The Bond Buyer.