Examining an Enterprise Payment Optimization Mindset

INTRO: 

Welcome to the Treasury Update Podcast presented by Strategic Treasurer. Your source for interesting treasury news analysis and insights in your car at the gym or wherever you decide to tune in. On this episode of the podcast, host Craig Jeffrey joins Jonathan Paquette, Senior financial solutions expert at Treasury Intelligence Solutions to discuss the concept of examining an enterprise payment optimization mindset. Topics of discussion centered around payment pain-points, innovative technology solutions, optimizing outbound payments, best practices, and more. Listen in to find out how to achieve global connectivity across banks, systems, and providers while positioning your organization for success. 

Craig Jeffery:

Jon, welcome back to The Treasury Update podcast. It’s good to speak to you again on this platform.  

Jon Paquette: 

Thanks Craig. Yeah. Good to be here too.  

Craig Jeffery: 

I think it’d be good if you could go into a quick tour of your career, so everyone knows, you know, where you’ve come through and how that influences the discussion of enterprise payment optimization mindset. You work at TIS, which is what we refer to as a treasury aggregator, connecting to banks for information, for payments and managing workflow, but maybe you could give a quick overview of your career before we get into EPO.  

Jon Paquette: 

Yeah, sure. Happy to do that. So, Jon Paquette, I’m the head of customer success for our us market for TIS, that involves overseeing our solutions architects team, our customer onboarding team, some partner engagement activities and partner onboarding type activities as well. So, joined CIS back in 2019, prior to that, really all my experience was as a treasury practitioner directly. So, I have 15 years experience in the industry. Really, you know, tackling a lot of these topics from an industry perspective as well. Most recently I was the treasurer for a, US-based healthcare organization here as well. So yeah. So, I’ve really seen things from both sides, both the practitioner side and the technology side.  

Craig Jeffery: 

Yeah. That’s excellent. And, and we’re looking to hear how you share those, those multiple perspectives on this, on this concept. The enterprise payment optimization mindset. We’re talking about this as a concept. I thought it would be helpful if you start off with a few elements of EPO. What is EPO broadly or enterprise payment optimization? How would you define that?  

Jon Paquette: 

Yeah, sure. Happy to do that. So yeah, I really, you know, think of EPO from two different perspectives. First, it’s a state that you can get to and within your payments process and being fully optimized. Right? Um, but we also think of it as, you know, almost our product, what we do at TIS. We sell, you know, EPO for organizations as well. Right? So, just to pull the term apart a bit here enterprise payments, we’re talking about a structure that really takes into consideration all payments across the organization. These are treasury payments, AP payments, HRP. Whatever your organization’s really processing. And historically these payment processes have really been siloed and operated independently of each other. There’s no global owner of payments, but rather they kind of sit with multiple different departments who might have chosen different ways to execute them. Right? So, you have to make. If no one’s strategically decided how that’s going to be done. You have processes that are more or less built on necessity, right? So, and that’s really what you run into issues in terms of having these siloed processes. So, the optimization side of this really refers to the efficiencies to be had by breaking down these silos. 

Jon Paquette:

In the case of EPO, unifying these processes from a transactional data standpoint, through an EPO tool specifically, right? So, and once a unified these processes, you gain all sorts of advantages. You simplify the bank connectivity that was probably the barrier to achieving straight through processing to begin with within your organization. You gain a lot of process improvements, the ability to really put in place things like consistent payment approval processes and controls across all of your payment processing. You gained visibility over the entire payment process for a day-to-day basis for a transactional standpoint, you can use your payment insurance more efficiently through either batching or using things like least cost routing or payment factories, and payment on behalf of really, you know, the list kind of goes on and on. 

Jon Paquette:

So, there are these process improvement perspective of it as well, but maybe, you know, the most important aspect of this is that you really unchained the data, so to speak, right? You free it from these silos that it was historically trapped in, and as these processes were really managed, separate. Historically, the state has been really hard to get that for organizations, but it’s important to leverage for better decision-making and actually to be more strategic, you know, in your payment activity as well. So, people don’t commonly think of payments as being strategic necessarily, but they can be, you know, really if the, if these processes are managed correctly and then from a product standpoint, EPO, right? I think of it as just essentially this toolbox of technology that provides you with everything you need to get to that optimized state. Simplified methods of connecting to your banks, format, transformation capabilities, so that, you know, all banking relationships can effectively speak to one another, workflows and integrated alert management so that all of these payment approvals and, you know, the visibility of the payments is really ingrained in your normal day-to-day process. And then also API capabilities to be able to connect to all of your applications, but also to be able to access that data that I was talking about there too, and pull that into various analytics tools or even a data lake or something like that.  

Craig: Jeffery: 

Yeah. So, you said, you said quite a bit, there, there was, there was, there was excellent and something that I, I want to come back to a couple of parts. One is about the, the unchaining data and the other is how you described it. And I wanna pull and tease apart how that’s different from a payment hub, which a lot of those items are very much overlapped with a payment hub, but there’s also it sounds like a little bit of process there, but I want to pull that in a little bit later. But first I wanted to hear your thoughts on, you know, enterprise level pain points, you know, taking this comprehensive approach or an enterprise level approach to addressing payment issues, whether like you said, it’s connectivity or formats or compliance, you know, as you look at this, you know, solving this whole suite of challenges or problems that come up for all of these silos you know, AP payroll, treasury. Um, can you talk about the pain points that, that you’ve seen as a practitioner and that you’re, you’re talking to people every day about this now. So, what are the, what are the pain points that you hear about as an advisor on payments, you know, on this topic?  

Jon Paquette: 

Yeah, for sure. You know, one common pain point I’ve seen both as a practitioner and I’m advising customers on this as well as that, you know, because there’s no global owner of the payment process, there’s nobody to really drive these initiatives strategically. Right? There’s treasury, that’s your gatekeeper to the bank relationships. They’re making the introductions to kick me off the projects. They’re also responsible for the company’s liquidity picture. So, they want to have visibility into how the cash is moving across the board. Um, but likewise not really driving fully how payments are being processed within the organization itself. Right? So, typically, you know, more so, driving it from a project standpoint, not from a strategic standpoint in a supporting role with conversations with the banks. And so, there’s nobody advising these more broader departments like AP and payroll on best practice payment initiation. I think this is a big reason why these processes end up so siloed to begin with. Everyone kind of runs in their own direction once these projects get kicked off and there’s no real unification in mind,  

Craig Jeffery:

You know, that’s interesting that, you know, you talk about the ownership, right. In some areas Treasury would look as an observer.  Maybe they observe, or they’re maybe they’re oblivious to what’s going on, process wise. They, they obviously have, like you said, the banking relationship, they want to know what funds are being used, but maybe they don’t worry about compliance activities as much or security. These are, these are massively important topics now that there’s whole new payment rails, new payment formats. There’s an increased sophistication on security attacks and inconsistent processes, not, you know, non-current security practices all threatened an organization from a risk and a cost perspective. So, as you look at that and you see that being a common element of pain across organizations, why is that the case? And you and I had a conversation earlier about receivables and payments. Do you have any more comments on that type of topic? Do you see payments behind receivables in a focus here, or… 

Jon Paquette:

Yeah, I’d say so. I’d say that historically companies definitely spend a lot more attention focusing on their receivables, collected cash quickly. How does that impact cashflow your ability to keep, you know, a low DSO for example, or something in line with your cash project? But the payments process doesn’t get quite as much attention really. Right? So, I mean, that’s definitely a big problem for organizations. You also brought up some good points in terms of the technology issues that most organizations face too. Right? So, how to secure these processes, how to deal with things like file formats and things like that if you don’t have anybody advising them, and it’s not uncommon for organizations to run into issues with those topics after the project’s already started, right? So, maybe during the course of the project, they contemplated payment file formats, but they come to find out that it’s not broadly supported across all payment instruments that they use, for example, and then you end up with organizations that have, you know, the bulk of their domestic ACH payments going out as straight through processing. But if they have different payment instruments, like international payments, or even payments with other banks that aren’t their main cash management banks they then have to fall back to manual processes and things like that, right? Because it really wasn’t considered holistically during the course of the project. So, common pitfalls, I think, for organizations to fall into.  

Craig Jeffery: 

Yeah. When you talked about liquidity, you know, you think of, how can I have better visibility across the board to disbursements as a key component of managing liquidity? If everything’s all over the place, now you’ve got many, many more feeds of data. You got to solve those problems and in a different way than if you’ve taken a comprehensive approach, certainly some significant issues there, and as you’re talking, it just made me think about these fragmented processes about, you know, the reason they’re silos is historical, but it’s also somewhat of a turf war. You know, this whole, you know, “Hey, AP owns their process”. They know how to approve payments instead of vendors and do that. But where do they tend to become less experts and someone else should take it over? And where do you draw the lines?  

Jon Paquette: 

Yeah, no, this is a great topic and something that gets brought up all the time. I think when we have these types of conversations, treasury doesn’t want to necessarily own the payment process in the, in the sense that they’re really in the weeds on everything that’s happening on a day-to-day basis and the processing of AP and payroll related payments. Likewise, like you mentioned, AP wants to own that as well. So, treasury’s role, I think is more so as the advisor, you know, the technology that’s being used to, to initiate those payments, is it best practice that leading edge here, you know, “Are we following the right financial controls and process controls and initiating that payment activity?” 

I think from that standpoint, these other departments would gladly welcome the help and identifying from a technology standpoint, the best way to do this and it puts treasury in a good position, I think, as more so an advisor then really being involved in every single process out there. This is exactly what EPO does it, you know, it gives, uh, the treasurer is a tool that they can use for this purpose, right? All the, that toolbox of different methods that they can use to really put all these processes in places as one centralized process, it gives them all the solutions and allows them to kind of facilitate and act as this advisor within the business. 

Craig Jeffery: 

I want to come back to that, that last point about the central activity, because there’s system and there’s areas and maybe we can tease out some of that. Maybe, those aren’t important, but I wanted to follow up on a part about the fragmented processes from different areas and extend that into there’s additional compliance requirements that are coming in. Every area that has payments has to do additional compliance work, whether it’s validating banking information, confirming when there’s changes. So, there’s both the legal framework for that, but also the controlling, you don’t want to lose money and then there’s also, in addition to regular payment changes, payment system changes, ERP systems for the most part, there’s a huge push if they’re not in the cloud, they’re moving to the cloud, whether it’s SAP or Oracle, you know, Workday’s in the cloud I mean, these are… there’s massive movements and changes for some of these systems that generate a lot of payments. So, maybe you could talk to those pain points too.  

Jon Paquette: 

Yeah, for sure. From a regulatory perspective, you know, quite commonly, a lot of countries these days are requiring additional verifications within the payment files themselves, whether it be, you know, beneficiary name and address is verified, or certain, you know, purpose of payments type information is required within the payment file itself. These are important components that organizations need to get into those, those files. And when they’re kind of managing this on their own, it might not be top of mind. It might be something that kind of slips their mind during the course of the project. But it’s certainly something that through EPO is almost automated, right? It’s ingrained into the payment processes to make sure that that’s actually contemplated and you can get a hundred percent of your payment activity, even those more exotic payments really flowing through that centralized hub too. Right? So, and then the migration to cloud, I mean, very, very common these days. We’re seeing a ton of organizations migrate to cloud-based ERP systems. And there’s a huge advantage here from that standpoint as well. For an EPO platform, it’s essentially completely decoupled. The connectivity and payments capabilities are completely decoupled from the ERP systems themselves. Right? So, what they rely on is the files coming out of the ERP systems that really indicate who you want to pay, right. Those payment files but if you think about moving from one ERP to another, that’s really just one connection, right? The system that’s sending in those source files. And then from the EPO platform itself is all the other criteria, the payment formats, the connectivity to the banks, right? The file movements back and forth. So, it becomes a lot easier to migrate these connections from one system to another. When you just have this almost one point of connection to contemplate in that whole process, the EPO platform.  

Craig Jeffery: 

I’d like to transition from some of the pain sets to this mindset, because I’ll get, I’ll go through just a couple of these, the, the general terms that we use in this space that are more system or structure related. So, when we say payment hub, or we say treasury aggregator, a payment hub is the system that supports generating payments, uh, sending them to different networks or directly handling different formats, validations, compliance, and the treasury aggregator includes a payment hub as well as the inbound act. A payment factory is, you know, it might be an area that handles payments might be some center of payment, excellence, or center of excellence where it’s an organization. We’ve talked about the EPO mindset, which maybe you could describe that in terms of, as it is not just a system as it is, what’s included in the mindset? 

Jon Paquette: 

Yeah. So, I think from first of all, from a, from a, you know, what is EPO from a product perspective? I think it’s more so, you know, taking a lot of the functionality that you described before. But thinking of it more from the ecosystem perspective, right? So, it’s not necessarily a product that’s built for a specific function to process payments, to, you know, transfer translate, file formats and things like that. It’s really an ecosystem that takes all of that and really makes it accessible broadly across the organization to facilitate EPO. So, now really the ability to, first of all, receive payment files and process payment activity across the entire organization, but also, you know, really give you full access to all the data that’s occurring there. So, you can leverage it for other purposes as well, whether it be analytics purposes on your own, or even, you know, fraud prevention purposes, like, you know, things like pattern recognition and things like that really, you know, really unchaining all that data, like I mentioned before so that you can use it more strategically that’s, you know, in my mind, really what EPO is. But it definitely is also a mindset, right? So, one common thing that we, that we always do for our customers when we kind of have initial conversations here is talk about our EPO maturity model. So, this is a model where we kind of assess the client’s current processes in terms of, you know, where they stand in terms of the maturity model that we’ve developed. 

Jon Paquette: 

You have isolated processes, you have control processes, network processes, and finally, you know, these fully optimized payment processes as well. And one thing that we do is we always go through and kind of map each one of their individual payment processes into one of these buckets. We explain the traits pertaining to being in that stage of payment optimization, the inefficiencies, and really how it’s inhibiting them from acting strategic, you know, and from that perspective, it’s an eye opener, but it really facilitates that mindset. Right? Of EPO and what, what there is to be gained by optimizing these processes as well. So, yeah, it can be a bit of an initial shock, I’d say for a lot of organizations, a lot of organizations don’t even have a full mapping of all their payment processes to begin with, which is really interesting too. Right? So, they don’t even know all the ways that they’re executing payments, but once they understand the deficiencies and they have the tools to actually correct them through, you know, an EPO strategy and platform, everything changes, right? The organizations feel much more empowered. There’s a mindset of continuous improvement that they fall into quite easily here, and the owners of the payment process really become experts. And they’re able to assess each situation, determine where it fits in terms of this maturity model, really what needs to change and how they can fold this into their EPO platform and process to kind of get to a more optimized state.  

Craig Jeffery: 

I like that. Isolate, control network, and optimize, you know, there’s some nice, nice texture there. You know, we think of, oblivious, observe, oversee, own, or oppress, and usually the oblivious and oppress is a pejorative, but this whole, you know, observed sort of fits with the isolation, oversee is control and perhaps network and then own is what do you do on, you know, this optimization side. So, I, I think there’s some, some good overlap, but you said something that was really interesting. And we see it a lot in our, our advisory business, particularly on security and payments is, you mentioned the inventory, when you, when you say people are surprised that they don’t have an inventory of all their payment processes, our experiences that when people are saying, yeah, we think we have this many payment processes. It’s usually two to three times the number of what they say. We had one company say we have 25 and they went and continue the process. They were over 50 by the time they felt it was comprehensive and it’s delivered all kinds of different ways through portals, through bank accounts that may not even be centrally tracked. And that’s, in today he’s world in yesterday’s world, that was scary in today’s world, I would say, that’s unacceptable. You can’t say, “Oh, we have, we have these five payment processes locked down, but these other 10, we don’t know what happens and maybe our, our limits, not so much, we don’t keep enough cash in the accounts. We’re not concerned.” There’s all kinds of excuses as to why nobody owns it, or nobody has this optimized mindset or this enterprise mindset. I don’t know. Does do those numbers match with what you see too?  

Jon Paquette:

 Yeah, I’d say absolutely. Yeah, not surprising to hear that at all. It’s, you know, people tend to think in terms of their main payment processes, but they forget about the legacy ERP that’s hanging out there or some sort of subsidiary of their business or something like that. So, most organizations definitely do not have that full mapping of their payment process for sure. And I think by in large, people do want to optimize those processes, combine them. They just don’t have the right tools to do so. Right? So, and that’s what EPO does. It gives them the tools to be able to take a look at those outliers of your payment process and really have a strategy for what you can do moving forward with those. 

Craig Jeffery: 

You talked about data and getting data out for, you know, analytics, unchaining the data, you talked about for fraud, and I think the view of we can see payment, history, speed, and can leverage that with machine learning. So, I think that’s pretty clear, but what are the, do you have an example on the analytics side, like what you can do with that data that enriches an organization? 

Jon Paquette: 

Yeah. So, I think really from two standpoints, so presently, I think you made a point earlier in the conversation that was a good one about cashflow forecasting. Payables are obviously a big piece of that. That’s your biggest variable cash outflow, organizations try to project out their payables based on AP balances in the ERP and you know, financial data, but it’s not perfect. You never know what’s going to actually get picked up in that AP run when it gets executed, and so a lot of organizations are reactive in that respect, right? They’re finding out what it’s going to be cleared for payables once it’s been initiated or even after it’s cleared the bank. Right? So, um, having that data in terms of how, how payments are flowing through your environment from an EPO standpoint, seeing everything at the point of really initiation there is valuable for organizations for cashflow forecasting as well. They can’t rely, you know, everybody wants to manage cash flow in real time, real-time cash visibility. That’s such a key term in treasury these days, but it involves more than just bank data, right? It’s not just having real-time visibility into, into your bank data. It’s actually having real-time visibility, into some of these systems that are generating payments as well, right? Creating those payment requests. So that’s one way where I think EPO helps immensely, but even taking that and being a little bit more forward-looking about it, really to take advantage of some of the functionalities that are coming to market now that are really kind of interesting for treasurers. I think, you know, predictive modeling and AI for cashflow forecasting, for instance, right? Being able to more proactively analyze your trends and better project out cash based on those. You need data to do that. You know what I mean? You need to have that data in order to run those predictive analytics models. And so, you almost need something like EPO as a predecessor for that. You could say the same thing about, for example, pattern recognition for fraud detection, right? Pattern recognition is a very powerful tool for fraud detection, but it needs data. It can only detect patterns in the data that it has. So, you know, this is kind of what I mean by unchaining, this data set right.  

Craig Jeffery: 

I mean, there’s some aspect where payment data is secure. It needs to be anonymized, but if you’re able to pull and get some of the other data, there’s a lot more that you can do with it. Otherwise, it’s just like we can’t access it. Therefore, we can’t analyze, we can’t determine anything that’s going on. Jon, before we move on to your final thoughts about enterprise payment optimization, I wanted to poke you a little bit on the payment experts. You’ve talked about payment experts earlier. This is, this is less system oriented. You know, you talked about the, you know, isolate control, network optimize that that’s an overall organizational perspective. And then there’s a, what are people doing? Who, who are the payment experts? What, what needs to happen here for this, this mindset with the people. 

Jon Paquette: 

Yeah, sure. I could definitely go into that. And that’s a journey we always see, I think during the course of our customer engagements, as well you know, I mentioned at the beginning of the podcast that the treasurer is usually making the introductions to the bank, steering things from a project perspective, but they’re not really in a position to be payment experts per se. Right? And really advise the business in that respect. And these are the things have changed completely. Once organizations moved to this EPO model and they have a platform to rely on. You know, for example I’ve a couple of different customer situations that I think are pretty interesting. You know, first was a company that was processing payroll processing payments in the Asian market. One of their Asian markets with a third-party provider regulations changed and there were no longer able to send those files out and have them process through a third party providers bank account. They actually needed to be processed from an in-house bank account. Right? And so, because they had an EPO strategy and platform available to them, essentially what they did was open up a new bank account. And then they took those payment files that were being routed to the third-party provider, rather than through the platform itself, converted them to an XML based payment, sent them directly out to the banks that way through connectivity that we had already established. Right? So, in that case, they had a solution right away that if they didn’t have this platform, they’d probably be scurrying to try to put in place, you know, something of straight-through processing and contemplate file formats. But they were in a position to really advise the business on how to change this plans.  

Craig Jeffery: 

Jon, I liked that example, this whole, you know, what, what NACHA refers to as third-party senders there’s just increased scrutiny across the globe. And that’s, that’s a really good example. Hey, you can’t send it through somebody else. You’ve got to do it directly. How can you be nimble and move quick? That’s great. And I think I cut you off. I think you were starting with another example.  

Jon Paquette: 

Yeah. I mean, the only other example I wanted to bring up was in that was actually for US payroll. So, you assume a company with this processing, their US payroll in-house and payroll is one of those departments that never really gets to leverage the latest technology for, for bank connectivity. Typically, they have some sort of SFTP connection to transmit NACHA direct deposit files. They get the reporting, their confirmations through the e-banking portal, and they really only find out if something’s wrong. If they get the phone call directly from the bank. After the banks come through the contact list and you know, it’s usually a late hour where the, the organization really can’t do anything. And so, this particular customer is really looking to avoid that move to a better process. They had the EPO strategy in place, right. An EPO platform. So, what they were able to suggest to the payroll department was route these NACHA files through the EPO platform. They’ll be converted to XML based payment files. Based on that you can take advantage of XML based confirmation files, which typically come in just about instantly after you’ve transmitted these files off to the banks, both batch level and transaction level confirmations. And the payroll department was no longer kind of, you know, subject to just using the reporting on the bank portal to confirm successful transit. They can do that much, much quicker. Right? And even more broadly across the organization, if anything was problematic about those files, more people were in the loop alerted real-time of those of those problems. Right? So just another way that I think that you know, once you have a strategy like this in place, you can really advise people on how things can change and be very nimble about it. 

Craig Jeffery: 

Yeah. That’s, that’s the intersection of clean business process with newer formats and this system visibility, this confirmation through XML. Now Jon, for final thoughts maybe you could either share general final thoughts or, you know, maybe you could say here are some of the main strategy pieces, finance or payments professionals need to think about.  So that’s sure that’s your podcast guest option either one of those. However, you’d like to end it.  

Jon Paquette 

Yeah. Sure, I think I’ll focus on maybe the component of continuous improvement, right? So, the process never really changes. You never really at the final edge state of optimization. I think all treasury practitioners know that their businesses are constantly evolving new ERPs are coming on board, you do an acquisition, you’re migrating to new technology. Bank relationships are changing out, you know, either by trade. Uh, preference or because you have a new credit relationship. So, flexibility is really key from this perspective. The strategy that you put in place needs to be able to allow for folding into these changes quickly into this optimized state or else you’ll very quickly find out that what was optimized is no longer optimized and you’re continuing to kind of fall back into these more siloed processes, and it never stops for us either. Right? So how we describe EPO probably will, will change. I would think, you know, as things advance in the banking market as well, new ways of connecting with banks are merging. They’re getting banks to getting more, you know, robust in their API offerings and things like that. Instant payment methods are coming to market. And these are the things that we’re always advising our customers on us as they become practical to use and things like that too. But EPO means being future-proof from that perspective that, you know, your provider will always keep an eye on what’s evolving in the market as well and help you to kind of move into the right future state. 

Craig Jeffery: 

That makes me want to ask you questions about, sunsetting of certain formats and other activities when you talk about future proofing, but we’ll have to leave that for another podcast, Jon, thanks so much for your thoughts, time on this discussion of EPO.  

Jon Paquette: 

Yeah. Thank you very much, Craig. And thanks for having me. 

OUTRO:  

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