The settlement conundrum; cashflow bottlenecks that shouldn’t be

Business is about cash flow, and anything that threatens that  lifeline causes sleepless nights to many c-level executives. That the situation has not been addressed adequately over the years points to salient issues that are yet to be brought to the fore. Cheque payments  had on average a four day settlement cycle before policies were put in place to try and shorten that timeline to at least a day. You will bear witness on the adhoc application of that policy across different financial institutions.

In simple terms, the settlement of payments should be possible in real-time. Even when subjected to historical models, same day settlement could have been the norm and not the service innovation. Instructions presented or issued to pay a third party are hived off into a settlement account in bank one with a clearing house doing the necessary reconciliation , confirming the value amount  and communicating  to bank two to make the value available. Even with maker checker security layers where account holders will ask to be notified of any outgoing payments for confirmation, the non-human process can be completed in a fraction of a second. Many banks have touted system upgrades that are supposed to enhance service delivery, but the elephant in the room remains unaddressed.

The  challenge lies not only with the banks but another system that probably channels the largest transaction volumes  as it is used by government – IFMIS.  While on a ten ministry research project, it became apparent that IFMIS presented bottlenecks  that if extrapolated against different matrix  – lost productivity, opportunity cost etc, could have been seen to result in  unprecedented losses to the country running into the millions.

The unfortunate bit about solution deployment, is that the motivations of all the players must be aligned. In this case, the value of overnight trades as available to the banking sector  on already released revenue has them turn a blind eye on what is a real pain point for SME’s, not accounting for the additional hit many already get on 45 – 90 payment cycles. On IFMIS, it may be too many processes strangling the system.

Legislation looks like the only way out to allow real-time settlement technology and attendant business models to take root and fan business growth, otherwise SME malnutrition will forever remain; invoice rich but cash flow poor.

An Africa based entrepreneur in the pursuit of opportunities without regard to resources currently controlled striving to build services that have real-world value for my beloved continent and beyond while having fun along the way.

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