Modernizing payments builds a better bottom line

Technology is constantly reshaping the way we live our lives, from advancements in medicine to the latest cellphone applications. One less conspicuous impact on our day-to-day activities is the way we pay and are paid.

Organizations that experience a high volume of payments between suppliers, customers, and partners stand to benefit the most by evolving the way they send and receive payments.

Key to payment modernization is the implementation of ISO 20022. It is a common messaging standard for financial institutions that will help them – and the businesses they serve – facilitate the move away from paper. By creating the ability to exchange more information with a payment, such as invoice data, ISO 20022 will help streamline cross-border payments by using a common global “language.”

Modernizing payments

In 2016 Payments Canada, which operates the core payment systems in Canada, announced that the ISO 20022 message standard will be rolled out across all its payment systems as part of its mission to modernize.

This means Canadian business will begin to have access to the standard through their financial institutions as early as 2019. This long-awaited development is already being implemented in other jurisdictions, such as Europe and the U.S.

The expected economic benefits are significant.

A recent Payments Canada study, in partnership with Ernst & Young LLP (EY Canada), quantified the current cost of payments processing for Canadian business, including the use of manual payment processes for accounts receivable and payable, to be between $3 billion and $6.5 billion annually. With a faster, safer, and more data-rich payments system, many of these operational inefficiencies will be reduced, lowering operational costs and boosting bottom-line returns over time.

Inefficiencies include labour-intensive matching of customer payments to invoices, poor visibility into supply chains and collections, limited predictability of cash inflows and outflows, difficulty tracking cross-border payments, and continued reliance on manual processes and legacy technology.

Simply put, ISO 20022 will help increase productivity, lower costs, and ease regulatory compliance.

The benefits to the metal industry are substantial because the new process will allow information to flow easily and quickly to whoever needs it, whenever it is needed. It will help provide immediate access to specific data to help smooth processes, from purchasing and shipping to managing customer relations and every step in between.

Data-rich payments

Specifically, payments modernization is making payments processing more efficient. Businesses will have access to more “unstructured” data with their electronic payments, growing from 15 to 140 characters long, and will be able to work with their financial institutions to receive “structured” data from business partners. This data will include significant room for things like invoice and customer numbers, amount paid, discount applied, and invoice date, which are part of the new data-rich payments that ISO 20022 will allow.

This data richness allows for the input of data across multiple invoices, a particular benefit for those with complex and frequent exchanges between partners and vendors in any given month.

With the metal manufacturing industry relying heavily on importing and exporting, the implementation of ISO 20022 will also help ease the difficulty of tracking cross-border payments.

The modernized systems, rules, and standards will result in faster, more scalable, and more secure ways to pay and reconcile payments. These improvements will include the development of systems to manage high-value, batch, retail, and real-time payments under improved risk management, regulatory, and rules frameworks. As adoption increases domestically and globally, ISO 20022 is something you should expect to hear about from your supply partners.

No matter the business size, payment modernization is affecting everyone.

In a recent Leger small and medium-sized enterprise (SME) survey, 54 per cent said they spent too much time on payment processing activities. Sixty-seven per cent said they would be willing to move away from cheques if they had other options, a choice supported by their selection of e-transfers as the No. 1 method to receive payments from their customers. Just over half (51 per cent) also make international payments, and more than 81 per cent selected cashless methods of payment they would like to be able to offer their customers, which modernization will facilitate.

While some Canadian companies may be familiar with ISO 20022 through global dealings, there is still a need to ensure partners are ISO 20022-enabled within the Canadian message specifications and usage guidelines.

To prepare, begin connecting with your key partners on ISO 20022, including suppliers, vendors, contractors, and your financial institution. The more who adopt early, the sooner everyone stands to gain.

The benefits ISO 20022 will have for the metal manufacturing industry are extensive. From simplifying the tracking of cross-border payments to less reliance on manual processes, ISO 20022 will bring with it faster, safer, and more data-rich systems. The result will be increasingly seen as a strategic focus for business leaders looking to improve their bottom lines.