Shared services debate: Crossing the payments divide

JL, J&W Associates

PC, Vodafone A payment factory makes payments but doesn’t necessarily manage the procurement process or the accounting. A shared service centre should combine finance, supply chain and HR within a single instance of the same ERP system across all subsidiaries, and manage all the purchase approvals, payments, accounting and bank reconciliations. A payment factory will make the payments but there’s still the problem of how you reconcile the payments and get the data into your accounting systems.

JLS, Statoil Our payment factory was established out of a need for enhanced cash control. Everybody is on the same SAP system, so our definition includes providing infrastructure, doing implementation, the programming with the banks, execution and clearing. An accounting team handles the inter-company cash offsetting. It’s a zero balancing system, which goes all the way into the accounts. We don’t brand it as a payment factory. We brand ourselves as an in-house bank, as like the one-stop-shop for treasury and payments for a unit. No bank accounts are opened by the operational units but we bring that on board within the combination of the treasury and the SSC.

BC, Philips We went for a payment factory in 1998 because we had too many ERP [enterprise resource planning] platforms. We didn’t want all 400 to 500 sites to start connecting to all their various local banks. In addition we were not sure about the quality of the connections they already had, the security levels or if they always used the cheapest way to make payments. We had planned to move the payment factory operations into an SSC when the decision came to sell, so we then decided to keep the operations in treasury.

OB, Volkswagen A shared service centre can be used for a specific function. We’re in charge of the factoring for the whole group and in relation to every importer. We handle thousands of payments, in huge volumes, so we are de facto a payment factory.

JL, J&W Associates You can have a shared service centre for a single function or it can be multi-functional. Phil, why are you setting up a shared service centre?

PC, Vodafone Vodafone has roughly 20 operating companies. One of the main reasons for the shared service centre is to bring all the accounting and transactional processes together. We intend to have one common accounting ledger but with local versions for each country. But these will be derivations of the same common ledger. It’s important from a transparency point of view. By bringing it all together we will have more visibility and control.

JLS, Statoil At Statoil, the drivers for establishing a global shared service centre were compliance and transparency. There were cost benefits as a consequence, but costs weren’t our priority.

PC, Vodafone Another driver is harmonization of processes. We spent a year looking around the Vodafone Group to design one harmonized version. It meant bringing all the operating companies together discussing processes and agreeing one collective way forward.

CB, Bank of America There has been a cultural shift, with more focus on central control of corporations and the need for more visibility or transparency of operating companies.

RM, Citi Sarbanes-Oxley is a driver too. Over the last 15 years, CEOs have got into less trouble for financial underperformance than for governance, ethical reporting and transparency. The cost to overheads of compliance and managing the downside of a headline risk has grown so much that these things come together well in a shared service centre, both for control and cost. Companies that go global find it’s a better strategy to have as many of the utility back- and middle-office functions in a shared service centre as possible, so that when they move into a new market, they go on a variable cost marketing and distribution model, as opposed to a full admin cost model.

KB, HSBC We’re dealing with two or three corporates for which the issue of governance has played a critical role. They’ve achieved what they wanted in Europe, North America and Asia and they’re looking at developing areas, particularly Latin America and Africa.

PC, Vodafone Our move towards a shared service centre has enabled an opportunity to look at the way we work and change certain areas. For example, the account structure has been influenced by Sepa [the Single Euro Payments Area]. We will also look into early payment discounts, factoring, etc, because of the increased visibility we will have when all the operating companies are on the same ERP system. There will also be more opportunities to work with suppliers and banks on improving working capital.

OB, Volkswagen We buy the receivables of all the factories through two channels. One is an automotive company with the group risks on the balance sheet and the other is a financial services company, with third party on the balance sheet. The processes are the same, with the financial services arm and the other a group treasury vehicle. We fund the factories, so whenever they have a car ready to be sold, we buy the receivable, pay them cash, and we get the payment from the importers at maturity. Volkswagen has a number of brands, with different policies in different markets, with different payment terms and different strategies. But we in Brussels have a view on what each brand is doing in every market, what the payment terms are and what risks are taken on which importer. It’s a huge reporting instrument. At the same time, it’s a huge funding instrument, and the only short-term funding vehicle for the group.