Every business manages payment operations. Payment operations are the various workflows involved in moving money in and out of a company: initiating payments, setting up approvals, tracking and attributing funds, handling payment failures and returns, reconciling transactions, safeguarding customer funds, and more.
As you can imagine, these operations represent significant volumes for companies with large payment volumes and leave little room for errors — the perfect use case for automation.
However, a survey of 905 finance executives in Europe reveals that there is room for improvement:
68% of respondents estimate that more than 25% of payment-related tasks are left to manual handling
51% of companies use their bank’s online banking platform to manage payment operations, and 29% still use spreadsheets.
31% of decision makers share that more than 9 hours per week are lost to resolving payment issues
By further automating their payment operations, decision makers expect faster bookkeeping, better customer experience and reduced manual errors.
That represents major areas that could be improved by automating payment operations. But what exactly can and should be automated?
Payment orders are the information businesses send to their banks to ask their banks to perform said payments. For the lowest volumes, creating a payment order can be as simple as logging into the bank’s online interface and sending a payment from there.
But as payment volumes grow, the online interface isn’t a viable option anymore, and creating payment orders turns into structuring the information required by the bank to send said payments, such as beneficiary IBANs, payment amounts and currencies. Then to be accepted and executed by the bank, payment orders have to be packaged into a specific format in a specific file, digitally signed, encrypted, and deposited on the bank’s servers. For the most sophisticated banks, this process can be done via an API call.
Similarly to payments reconciliation, creating and transmitting these payment orders is a tedious process that consumes time that could be allocated to other tasks and projects. The manual handling of payment orders creation also adds delays between the decision to make a payment is made, and the time the payment order is sent to the bank, thus extending payment delays.
Manually managing payments also introduces a high risk of errors. Skipping a line in a spreadsheet or missing a copy-past can lead to a payment being sent to the wrong beneficiary or all the payments of the day being rejected by the bank.
Payments reconciliation is the bookkeeping process that matches internal records of sent and received payments with transactions appearing on bank statements. It’s essential to ensure that all payments sent have effectively been received by counterparties and debited from the company’s bank accounts and that all expected incoming payments have effectively been received in the company’s bank accounts.
Manually managing this process means, in the most straightforward cases, manually parsing banks’ account statements to identify transactions, identify relevant information in these transactions, such as reference numbers, amounts or dates, and matching these transactions with the correct payments logged internally.
Manual reconciliation is a slow and tedious process. In addition to leading to the slow closing of books and consuming time that could be allocated to other tasks, it can have substantial velocity impacts on the business. Indeed, some businesses might not perform a purchased service, deliver purchased goods, or, in the case of payment companies, pay the beneficiary of a collected payment until the corresponding initial payment has been confirmed through its reconciliation. As such, slow reconciliations can significantly impact customer experience.
Because of how tedious this process is, manual reconciliation can also lead to frequent manual errors. These errors might lead to a mistaken understanding of cash at hand and confusion on the actual execution of sent or received payments. Once again, impacting both the business and the customer experience.
The more payments a company manages, the more manual reconciliation pains grow.
There are many reasons a payment can fail, including many external to your control.
As such, payment issues will undoubtedly happen. Such issues include failed payments, when your bank didn’t execute the payment for compliance, technical or other reasons, returned payment when you, for instance, sent a payment to an account that has been closed or failed direct debit when the account you are trying to debit has insufficient funds.
Another common payment challenge is failed instant payments, when the beneficiary bank doesn’t support this payment method.
While one could consider these payment issues as the exception rather than the norm and as something that can reasonably be manually managed, payment issues should actually be the main driver to automate payment operations.
First, as discussed above, even if your entire payment operations are 100% automated, issues will happen, and more issues will happen as the volume of payments increases. If not automated, the handling of these issues will consume significant time for payment operations teams. From identifying the issue to investigating it, identifying its root causes, and resolving it, a single issue generates a lot of downstream tasks.
Payment issues also create complex reconciliation workflows that can introduce errors. Let’s take the case of a payment return. When the originator bank executes the outgoing payment, it will appear on the account statement and most likely be reconciled.
But if the beneficiary bank then rejects this payment, it will be returned to the originating bank account in the form of another incoming payment. The company that sent the original payment needs to identify that the said incoming payment is a return of the sent payment, identify the sent payment, create a new incoming payment corresponding to the return in its systems, and reconcile it with the corresponding return transaction on its bank account.
Again, it is a tedious, time-consuming process if handled manually.
Automating these payment operations tasks obviously requires systems capable of performing the workflows described in this article:
Turning payment information into payment files accepted by banks
Reconciling initiated and expected payments with account statements
Identifying and resolving payment issues and their downstream impacts
Such systems themselves aren’t trivial to build. They’re also insufficient to achieve end-to-end automation. Indeed, all payment operations involve information sent to and received from banks.
Automating payment operations, whether sending payments, reconciling them or managing payment issues, therefore, requires software connectivity to the banks’ systems to exchange the required information between companies and their banks automatically.
In addition, simply moving manual tasks from one system to another isn’t satisfactory. Payment operations are part of companies’ day-to-day operations. They are triggered by or driving companies’ operational workflows and business operations, which are for most companies managed in software systems such as ERPs or Core Banking Systems for companies in the financial services field.
As such, end-to-end automation of payment operations requires a complete integration of the payment operations systems into these internal systems.
How Numeral helps companies automate their payment operations While not core to most companies’ business, all companies need and do manage payment operations. But they too often do so manually.
Building the systems allowing end-to-end automation of payment operations, including bank and internal systems connectivity, represent complex, significant product and engineering projects not justified for most businesses. More targeted initiatives such as building the systems to support new payment methods like SEPA credit transfers also aren’t within most companies’ reach.
Numeral is the bank orchestration platform designed for companies building advanced payment flows on top of their banking partners.
Through a single API and central dashboard, our platform empowers product and finance teams with seamless bank integrations, faster payments, real-time data visibility on accounts and payments, as well as efficient workflows, so they can automate their payment operations end-to-end.
If you are considering upgrading your payment systems or are evaluating where and how to start, don't hesitate to get in touch with us.