Why Payment Operations Should Go with the Cash Flow

Thanks to a combination of external and internal pressures, the intraday monitoring and optimization of cash positions is now de rigeur for banks. As a result, cash managers are becoming increasingly proactive, but can payment operations meet their real-time demands?

In part 1 of this discussion , we saw how regulation, as a key driver of optimized cash management processes, is leading banks to address a wider range of liquidity challenges – by encouraging both an intraday approach and greater transparency. For example, the real-time monitoring and projection of positions and cash flows can also help cash managers maximize interest on surpluses and minimize penalties when there are shortfalls. Additionally, intraday and projected views of positions are proving critical to managing counterparty, trading and settlement risks.

However, as a natural extension of these liquidity monitoring trends, cash managers also need to interact more readily with the payments linked to their cash positions. This can present challenges, however, for cash managers’ newly proactive methods are often at odds with traditionally reactive processes of payment investigation.

From the automated sweeping of cash surpluses to manual adjustments and payment throttling, cash managers now expect to be able to respond to intraday deviations in cash flow and the corresponding impact on funding levels. But before responding, and regardless of the appropriate action, the accuracy and validity of this information must be verified and published. The problem is that, to date, payment investigation has usually happened on an intermittent or end-of-day basis, reacting only to issues after they have occurred.

With cash management and liquidity monitoring now taking place in real time, the pressure is on for the payment operations team to take a similar intraday approach. Cash management, liquidity optimization and payment investigation are inextricably linked – so any interaction between these areas must be smooth and instantaneous, with the findings of the latter supporting funding decisions.

The answer for banks is to not only provide a liquidity monitoring capability for cash managers but also to support it with a cash flow validation and proactive payment investigation area for the operations team. Most importantly, cash managers must have easy access to the latter, so that they can move seamlessly between the liquidity monitoring and payment investigation areas. This will enable them to effectively gain a clear view through to the darker reaches of the back office, where they can see the status and resolution of payment activities and issues at individual transaction level.

Above all, by moving payment investigation to an intraday model in step with cash management, banks can resolve settlement and payment issues before they become an end-of-day problem. By introducing intraday automation to payment operations they can also improve efficiency – while enabling the operations team to provide accurate, real-time validation of unexpected payment activity. Ultimately, this supporting process will deliver the confidence in liquidity positions that cash managers need to make informed and appropriate funding decisions. So, in an increasingly intraday environment, it pays for operations to go with the flow of cash management – and, through fluid interactions, help optimize every drop of liquidity.