Have you ever thought for a second, one of the most time-consuming tasks of finance departments around the world?
I would argue the Accounts Payable / Accounts Receivable functions between various businesses. There manual exchange of paperwork, payments and matching off your bank statement consumes a significant amount of time, whether through electronic payment, BPAY or international payment.
I know this because I spent much of my time within industry looking after collections and accounts payable departments. One of the most frustrating and time-consuming elements were identifying who had paid us, which invoices it related to and sorting out any disputes or short payments.
Right Data, first time
There is always a delay and a lag between when payments are made, cash is received and reconciled. Some of the key challenges why this occurs:
· Accounting Systems – producing a batch ABA file and processing through bank overnight.
· Lack of information – no information sent about a payment.
· Manual – only identifier being a remittance advice emailed from a customer.
· High volume – processing is done by humans, which is limited by time, information, and effort.
· Incompatibility between systems – systems not talking to one another in real time and having a different language.
· Syntax – no common syntax between systems, financial institutions and overseas organisations.
What is ISO 20022?
ISO 20022 is an emerging global and open standard for payments messaging. It creates a common language and model for payments data across the globe. One that provides higher quality data than other standards which means higher quality payments for all. One that improves compliance, increases efficiency and enables a better customer experience as well as payment system harmonisation.
What are the benefits of ISO 20022?
ISO 20022 provides richer data end-to-end. Data that is right first time. Data that is structured and more meaningful. In short, it provides quality data which means quality payments. And quality payments mean a richer, faster and more efficient end-to-end payments experience for banking customers.
Some of its features include:
· Rich Data – you can include much more details about the payment. Not only the remittance but also the purpose, original source, ultimate beneficiary and relevant supplemental data.
· Rich Data end to end – all actors in the values chain of money are talking the same language. More transparency means faster and more efficient payment processing.
· Right Data, first time – more accurately transmitting the data, reducing the number of failed payments, false positives, and investigations with financial institutions.
· Structured, meaningful data – the data is more useful and meaningful which leads ot better transaction matching, analytics and decision making.
The banking industry is now evolving, and I believe this new standard that took effect from the beginning of 2020 is a massive opportunity for Australian businesses. ISO 20022 is relatively mature within US and Europe. Both India, South Africa, Japan, Singapore and Switzerland are in the process of growing their adoption. And Australia, Canada, UK and NZ are all interested to use this messaging format for payment transactions. Source: https://www.iso20022.org/
Where to from here?
Most organisations accounting and ERP systems are not configured and setup properly to cater for the new ISO 20022 standard. Not only do their systems need to be configured for the new payment format, but there are also API integrations into payment platforms and the change management of business processes within customers and vendors.
It all starts with recognising where this is all heading and to start considering what this journey may look like for your organisation and what can be done today to get yourself prepared.
Justin Lake is the CEO of Think Numbers, a Finance and Transformation consulting business to help organisations on the path to excellence through Finance Transformation. Feel free to get in touch.
For more information please reach out to us for a no obligation discussion.
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