The Impact of Bankruptcy on Shareholders
Companies that file for bankruptcy also have a capital structure just like normal companies. This means that their capital structure is comprised of debt as well as equity. In the past few articles, we have been continuously talking about the interests of the debt holders i.e., how they will get paid in the event of […]
Techniques Used in Ratio Analysis
Ratio, as the name suggests, is nothing more than one number divided by the other. However, they become useful when they are put in some sort of context. This means that when an analysts looks at the number resulting out of a ratio calculation he/she must have a reasonable basis to compare it with. Only […]
Job Costing and Service Firms
Law Firms: Law firms all across the world practice job costing. Most law firms charge an hourly rate to their clients. This rate is derived on the basis of the same factors direct material, direct labour as well as overheads. In case of law firms, the direct material used is negligible. The majority of the […]
The Financial System and Basel Accords
In the previous articles, we have already read about how banks are the main pillars of the financial system. It is obvious that since banks are so important to the economy as a whole, the government must create a system to protect these banks from collapsing in case a negative economic event occurs. Governments all […]
Disadvantages of Black Friday Sales (Deep Discounting)
In the previous article, we have already seen what Black Friday sales or deeply discounted sales are. We also know the economic rationale behind such sales. Some of the benefits which are derived from these sales have also been discussed in the previous article. However, it would not be appropriate to say that deeply discounted […]
Timely payments are very important to any corporation. Only if a corporation is able to keep its word and make on-time payments to vendors, does it get the best terms from these vendors. Traditionally, making timely and correct payments was a big cost for large corporations. This is because these corporations have to process thousands of transactions every week. However, with the advent of technology, payment processing has become simpler.
Commercial banks play a very important role in the development of this payment ecosystem. In this article, we will look at the various roles played by commercial bank which enables them to make timely payments.
Automation is the buzzword when it comes to payments in corporate banking. Over the years, several ERP systems have been created which can achieve almost complete automation from the side of the corporation.
Corporations need a banking partner which has an equally technologically advanced system so that they can achieve straight-through processing i.e. completely automated payments processing without any manual inputs. Commercial banks can assist corporations by providing the following services back to the corporations.
Since there is a wide variety of ERPs which are used by different corporations, commercial banks need to have the technological capability to interface with all of them. In most cases, banks provide a standard file format in which the corporations have to provide the data. This data can then be used by the bank’s system to securely and automatically process financial transactions on behalf of their client. The ability to automatically process transactions is vital for the business as it helps significantly reduce costs.
Once again, a data format needs to be agreed upon with the corporation. This data format is then converted into a report at the corporate end. The end result is that corporations do not require any manual intervention to process and reprocess the payments.
A lot of corporations that conduct business with banks are multinational corporations. Even the smaller corporations are engaged in foreign trade to a large extent. Hence, there is a need to make international payments as a regular part of their business. The services provided by commercial banks are very important in such cases. This is because of the fact that international payments can be very expensive because of the transaction charges involved.
Commercial banks help corporations by helping them manage their foreign exchange needs in the most cost-effective manner possible. They do so by helping corporations hold different accounts in different currencies and then make payments from those accounts instead of converting currencies and paying conversion charges in the process.
Commercial banks also help create a seamless communication channel between a corporation and its payees. This is because once they process the payment, they also create a mechanism by which they send email or paper advice to the respective payees. This advice contains details about the amount remitted, the bank accounts they were remitted to, the payment method used for remittance as well as the invoice reference. As a result, the payee is aware of exactly which payment they are receiving.
Since the payment advice needs to be generated after the payment has been completed, the banks are in the best position to create this. This is an important service that they offer to corporations.
Also, there are many industry-specific payment problems that are faced by corporations. For instance, companies operating in the retail space have very different payment needs from companies operating in the manufacturing space. Commercial banks need to understand these special needs and then provide payment solutions that can help resolve these needs.
The bottom line is that payment processing is a herculean task for corporations all around the world. Commercial banks have created technologies and systems which enable corporations to undertake these tasks in a cost-effective manner. It is for this reason that payment services are the backbone of the commercial banking sector.
Your email address will not be published. Required fields are marked *
