SEPA Archives - Page 2 of 2 - treasuryXL

How much are you paying your bank ?

| 30-1-2017 | Patrick Kunz |

Does your bank send you a monthly invoice how much they charge you on banking costs? Some do but some don’t. Even if you receive an overview of these costs – do you look at them? Often organizations don’t and that’s a pity. A bank is as much a services provider as other suppliers of the company. Of course changing banks is not something you do every year but that does not mean you should never do it or never have a look at your banking costs.

Allthough even if another bank proves to be less expensive, it should not always imply to change the bank, as the indirect costs of a bank change should also be taken into account and you always have the option to renegotiate.

The first step when looking at your banking costs is how your payments look like. Is your company doing only national payments or SEPA or are you transferring (or receiving) money from outside the SEPA region and/or transferring non-EUR payments? This matters because a national payment and SEPA payment will cost you around 0,10 EUR per transaction while an international payment can costs on average EUR 6. The potential saving on international payments is much higher.

There are several ways to reduce the transactions costs:

Reduce the amount of transactions. This is often easier said then done because you have to pay your bills and your customers pay theirs to you. However, with international companies there is often a number of intercompany transactions. These transactions do not necessarily have to go via the bank account. They could be settled via in house bank or internal current accounts. Often these intercompany transactions are international transfers or non-EUR payments which brings me to the next point
Analyse the foreign currency transactions. As said above these transactions costs around EUR 6 per transaction (and I have seen banks charge up to EUR 50 per transaction) so the saving potential is big, if you do a lot of these transactions. You can ask yourself do you need to pay your supplier in foreign currency? Can I receive my invoice in EUR instead of foreign currency? Often complex questions leading to more questions (hedging?). It is not always possible to change transacting in foreign currency so another solution to reduce transactions costs is to move the bank account to the home country of the currency. This way the “foreign” currency becomes domestic and therefore transactions costs move from international (EUR 6) to domestic (EUR 0,10), a big potential. Of course there are some limitations to this.

Have a look at the total return of your bank. Your bank is one of your suppliers so it makes sense to compare the costs of the supplier to their competitors, especially if you have multiple banking partners. As for suppliers you do not always choose the cheapest but also take into account service level and worldwide availability. It does make sense to compare banking costs every 3 years for market conformity. My advice would be to take into account all banking costs (so also FX deals, corporate finance, trade finance, guarantees). Banks often cross sell their products and the total fees are never visible so you have to gather this information yourself. I prefer to calculate the RAROC (Risk adjusted return on capital) for each banking partner. This way you can easily compare the total return per bank. This helps a lot when renegotiating fees or (new) credit lines. RAROC calculation is not easy and it takes often quite some work to gather all information but once implemented it is a nice tool for companies with multiple banking partners to compare (and rank) banks.

Patrick Kunz

Treasury, Finance & Risk Consultant/ Owner Pecunia & Finance BV

Will the European banks strike back?

| 27-12-2016 | Hans de Vries |

Last November The European Payments Council (EPC) launched the single euro payments area (SEPA) instant credit transfer (SCT Inst) scheme. The scheme will be live in November 2017 and allows the European banks to propose innovative, digital, and fast payment solutions to their customers. The EPC describes the SCT Inst scheme as “a world first, enabling individuals, businesses, corporates and administrations to make instant euro credit transfers between accounts across an international area that will progressively span over 34 European countries. This new scheme is a revolution for the traditional 9 to 5/ weekdays only operating banks. Will it also block the way to relative newcomers like Paypal? Will the banks seize this opportunity and strike back?

As a result of the internet experience, banks had to deal with the fact that their systems were not able to cope with the subsequent demands of the 24/7 demands of the retail market. Paypal attacked the weakspot of the banks by introducing their worldwide internet banking solution. Downside of this approach is of course the fact that the consumer had to first open and credit their Paypal accounts, before they were able to use this payment method. And of course the merchants had to support this payment method as well and find ways to collect their funds. As an alternative creditcard payments were implemented and local solutions like I-Deal in the Netherlands, Mister Cash in Belgium etc. All these alternatives had their ups and downsides looking at costs and reachability. Most important value of these solutions were that the Merchant was to some extent sure that he received the funds before delivering the goods. And it worked both ways, the consumers were also sure that the goods would be delivered as soon as the transaction was finished.

With the upcoming introduction of the SEPA instant credit transfer scheme, as announced by the EPC last month, this whole picture is about to change. The EPC describes the SCT Inst scheme as “a world first, enabling individuals, businesses, corporates and administrations to make instant euro credit transfers between accounts across an international area that will progressively span over 34 European countries. This implicates that the consumers can directly debit their accounts and instantly transfer their funds to their beneficiaries all over Europe with the same effect as the current local schemes like I-Deal. This means that Internet Merchants all over Europe are by now reachable for the total European consumer market. Of course it will take some time before all banks are able to support this service and are also able to provide the consumers as well as the Merchants with the tools to obtain the information real time. However, the PSD2 regulations will certainly support this development and the FINtech industry will make sure that the information flows are connected to allow for flawless operations. By implementing the SEPA instant credit transfer scheme the European banks are able to recover lots of grounds they lost uptill now to external parties like Paypal: the banks will strike back! And they will have to in order to survive in today’s world.

Hans de Vries

Treasury/ Cash Management Consultant

International direct debit, the one true advantage of SEPA

| 11-11-2016 | Jan Meulendijks |

At its introduction time SEPA seemed to be just another (more complicated) payment method, more imposed by EU-regulations than a market requirement. For international for exporting companies however, there is a very interesting bonus in the form of SEPA’s possibilities in the field of direct debit. Foreign bank accounts can be debited (for receivables) in the same way as Dutch bank accounts.

SEPA has contributed a lot to the awareness of using international direct debit. Before SEPA, companies had to to go through a complicated process in order to be able to process international direct debits:

– Set up multiple foreign bank accounts, in every country you export to
– Include these accounts in your cash pool and electronic banking environment
– Use unfamiliar local IT-tools and file formats
– Expensive to use and set up, lots of documentation required
-These were reasons for international operating companies not to apply the instrument of international direct debit.

All that is not necessary anymore. The main things are to arrange a SEPA Direct Debit contract with your own Dutch bank and obtain a direct debit mandates (one-off or recurring) from your foreign clients, similar to getting one from Dutch clients.

The mandates are sent to the debtor’s bank for registration. The transactions themselves can be included in your regular direct debit SEPA-batch alongside with your Dutch direct debits and presented to your bank for processing.

The result will be a better grip on your international receivables, cash planning, working capital management, all at low costs.

Your bank will be able to explain the procedures to follow.

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Jan Meulendijks – Cash management, transaction banking and trade professional

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TIS Webinar: SEPA in Sweden – The key to a smooth transition

| 27-10-2016 | TIS | Sponsored content |

Dear community members, we would like to bring this TIS webinar under your attention. On November 3th between 04:00 and 04:30 PM TIS will host : SEPA in Sweden – The key to a smooth transition. We think it will be an interesting session and hope to hear your reactions afterwards!

Are you set for SEPA? On October 31^st, Single Euro Payments Area (SEPA) aims to make the payment of goods and services in Europe easier while allowing you centralized payments and liquidity management.

However, what steps do you need to take to ensure your organization is prepared for this shift? Which elements can you already prepare for, and where should you reach out for assistance? And, have you ensured that your ERP systems are compatible for ISO 20022?

Stop wondering, start smooth sailing towards SEPA.
Join TIS for a live webinar to check off your list of to-do’s and also answer any questions you might have.

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How can Cash Management improve your Cash Conversion Cycle part III

| 07-10-2016 | Olivier Werlingshoff |

This week an article about the underestimation of cash management on LinkedIn caught my attention. 50% of the companies even doesn’t see the added value of a good cash flow forecast! This does not surprise me and therefore gave me a reason to pick up the pen and write another article on how to improve your cash conversion cycle!

In my two previous articles I gave some examples of how cash management could improve the DSO and the DIO but, what about the DPO? The DPO is an efficiency ratio that measures the average number of days a company takes to pay its suppliers. The more days, the better your cash conversion cycle will be.

Extend payment terms

The first action that can be taken is to extend your payment terms. In the payments barometer from Atradius of 2016 you can find an overview of all payment terms and average DSO for all countries in Western Europe. The reasons why payments are delayed are also mentioned.

The average given payment term to B2B customers in The Netherlands is 27 days, the average DSO is 42 days! Most of the time the first action that is taken when companies have liquidity problems is to extend their payments. The negative aspects of this action can be major. The first aspect is the impact this action has on your supplier, because he has to wait to receive his money. He will then have to look for alternative borrow possibilities. Besides the negative relationships, the extra costs will probably be include in his next price. Suppliers can also decide only to send you the goods when paid in advance.

As you can read this action can have a boomerang effect.

Reverse factoring

A possibility to extend your payment term without all negative effects is to use reverse factoring. With reverse factoring you give the possibility to your supplier to receive more favorable financial terms than they would have otherwise received for a loan.

The effect could be that the relationship between you and the supplier can be improved and you still can extend your payments.

Single payment solution

Another solution is to decrease your banking transfer time of a payment. If you have a lot of foreign suppliers, transfer times can easily be extended, especially when you need to use correspondent banks.

Using banks with an international presence as well as a single payment solution will facilitate you to follow your payment and use the fastest transfer method. By doing so, you can delay the moment of payment and still pay on time.

Within the EU you can make direct payments as a SEPA payment, because there are no borders anymore for money transfers. You don’t need local accounts anymore to facilitate and accelerate your payments.

Olivier Werlingshoff

Owner of WERFIAD

Instant Payments: major innovation ahead! How fast is “the new normal”?

| 07-09-2016 | Boudewijn Schenkels |

Imagine it will be possible to transfer money within several seconds from any bank account to another bank account. 24 hours a day, 7 days a week. It will open large business opportunities enabling many innovative payments use cases.

After the introduction of SEPA the market is ready for further innovation. New payment laws (PSD2) make the payment market more competitive and new payment providing parties are anxious to participate. The continuous development of the ‘always on’ economy drives the need for faster and 24/7 payment execution.

According to the European Retail Payment Board (ERPB), an instant or immediate payment is an electronic (retail) payment solution, available 24/7/365 and resulting in immediate interbank clearing of the transaction and crediting of the payee’s account with confirmation to the payer within seconds of payment initiation, irrespective of the underlying payment instrument used and arrangements for clearing. Basically: sending and receiving payments 24/7 within seconds. National instant payment solutions have already been successfully launched in a number of European countries, such as Denmark, Poland, Sweden and the UK.

The SEPA Instant Payment, based on the SEPA Credit Transfer, can be offered in SEPA by November 2017; with the Rulebooks for this so called SCT Inst scheme becoming available in November this year. Some communities will offer Instant Payments from the start, others will follow later, but not offering Instant Payments doesn’t seem to be an option. Various other countries, including The Netherlands, Belgium, Spain and Italy, are running programmes to deliver Instant Payments to their communities in the coming years. The major Dutch banks have committed themselves to deliver Instant Payments, or what they call: “the new normal”, by May 2019.

Instant Payments in itself will offer new interesting payments use cases, but it will certainly serve as a platform to support many new innovative payments services.

Impact for Treasurers and Cash managers

For treasurers and cash managers there will be large changes as well as opportunities. For a long time banks have provided cash pooling solutions to their customers, but Instant Payments will allow to sweep accounts at any time to enable efficient cash pooling and distribution eventually throughout Europe.

Another few examples of these “future” use cases are:

Pay upon delivery (car purchase, market place transactions) every hour of the day

Enabling of cash transactions replacement

Instant Pay-out of Insurance payments: in case of a calamity an immediate pay-out and availability of funds can be very beneficial for consumers;

Instant lending: propositions where loans can be granted in near real time the pay-out can be done instantly providing the customer with access to the funds immediately

Notary payments: immediate transfer of funds also in the weekend

Request for Instant Payment: request a payment and get payed immediately when authorised

Time critical or “just in time” business payments: the greater transparency in a SEPA Instant Payment (within seconds it is either successful or not) will enable businesses to pay and be paid on delivery (e.g. shipping, delivery of goods, etc.), or to settle fees such as tax, port fees etc. associated with a cargo to enable its release

It can replace some urgent payments services

Late cut-off times for SEPA batch payments by re-using Instant Payments: if a service is introduced that converts batch SEPA Credit Transfer payments into Instant Payments businesses can profit from the 24/7 instant character of Instant Payments without major changes to their payments environment; depending on the size of the batch and the capacity of the instant payment infrastructure batch payments can be executed in minutes or in a few hours and out of business hours; it allows business to pay later, pay on a specific day of the month and increase liquidity

Instant Direct Debit: an Instant Direct Debit would combine the advantage for businesses of having instant clarity of the payment succeeding and receiving funds, for instance last minute lottery ticket

You will say, “too good to be true”, but they are all in scope for “the new normal”. I would like to say: be aware of all the changes and business opportunities for your organization and prepare yourself!

Boudewijn Schenkels

Senior Consultant Payments @ Payments Advisory Group

How to cope with the interconnectivity trap part II

| 16-08-2016 | Hans de Vries |

Electronic Banking has been here for more than thirty years now. And it certainly had a big impact on the way the corporates and banks communicate. Nevertheless, ever since the introduction Treasurers have been struggling to incorporate this feature into their IT ERP environment. They get stuck in the middle. You can read more about that in part I of this article. Today I will show you my “way out”.

A bank and ERP (and TMS) system agnostic solution to upgrade the Treasury function

The SaaS solution described in this article is particularly interesting for Treasurers because of the very limited implementation efforts that are needed to set-up the system at the corporate side. All the platform needs, is a connector that takes care of the automatic upload of files from the ERP environment to the platform. The platform takes care of the conversion of transaction files to the file format needed by the specific banks for processing and performs a validation on the contents of the files to ensure Straight Through Processing at the bank.

So there is no need for changing the output at the current ERP system. This is extremely handy in situations where the corporate landscape consists of various ERP systems, or various versions of an ERP system. The same goes for the download of statement files. After collection of the bank statements, the platform takes care of the conversion into the needed file formats and delivers them into the ERP (and TMS) environment for automatic reconciliation purposes. By using the (SaaS) bank agnostic platform the Treasurer is immediately freed from all usual IT concerns with regard to the bank connections. Most systems also provide the Treasurer with a Dashboard Function to monitor the actual total balances at all banks and the cashflows (End of day and Intraday) that enables them to perform bank (automated) independent cash balancing transactions if needed.

Streamlining the authorization processes to get full control

In most multibank situations the treasurer is faced with one bank only authorization schemes that in most cases use unique bank authorization codes tokens and procedures. This wide variety of tokens, passwords etc. makes life for a Treasurer far from easy especially from a compliancy perspective.

Routing all outgoing transaction files via the SaaS platform, provides the Treasurer with the unique opportunity to streamline the authorization process. He now gets the opportunity to fully control and maintain the granted functionalities / authorization levels per user that are applicable on all bank accounts. Especially in the upcoming times of real-time 24/7 processing by the banks, using this sole gateway to the banks will provide the Treasurer with maximum control of all outgoing transactions and therefore avoiding fraude to the max. Since these systems also provide all necessary audit trails, the Treasurer can take full accountability for the banking processes.

Saving substantial money

Depending on the platform and the number of banks that need to get connected, the costs of the implementation and annual subscription fee will vary per provider. However, the benefits of such an investment are not only measured by the upgrading of the internal cash management processes.

Implementing the platform will also directly lower the operational costs:

Experts estimate costs of € 15,000 per year per e-banking solution (maintenance, license fees, software updates, system administration, system tests, database configuration etc.)
Elimination of expenses for manual liquidity tracking, manual administration of bank accounts and bank master data as well as the bank-specific administration of signatory authorizations.
Reduced banking fees as a result of higher transparency, easier comparability as well as the maximized flexibility towards banks: daily choice of transaction bank(s) per currency/ transaction type.
Saving operational costs due to the elimination of manual intervention for the collection and upload of bank statements to the ERP system. In the perfect set-up the reconciliation process can be fully automated and finalized in the early hours of the day providing a head start to the credit management department.

In most cases, these savings pay back the investment in the bank agnostic platform within a year. The introduction of this relatively new cash management service will free the treasurer from the interconnectivity trap, upgrade the internal organization, provide a uniform authorization scheme on all banks while at the same time reducing the operational costs. This solution is also future proof due to its capacity to adopt quickly to new standards, formats etc. All in all, a perfect perspective on upgrading the cash management function within the treasury. For more information, check: PowertoPay.com.

How to cope with the interconnectivity trap?

| 09-08-2016 | Hans de Vries |

Electronic Banking has been here for more than thirty years now. And it certainly had a big impact on the way the corporates and banks communicate. Nevertheless, ever since the introduction Treasurers have been struggling to incorporate this feature into their IT ERP environment.

This struggle has proven to be a tough one, due to the ever changing internal ERP environment as a result of various versions of the same ERP system or even various ERP systems within the company due to take-overs/ mergers. And of course there was quite some turmoil in the banking industry itself: the introduction of the Euro, then SEPA with all new transaction formats and regulations, meanwhile a banking crisis etc. Moreover, the ever growing demands on security and compliance pose further pressure on the interconnectivity. As a result, it has become more and more difficult to keep all connections in place and up-to-date. Especially since most corporates are forced to spread their cash management business amongst multiple banks from a risk mitigating perspective. On top of that the Treasurer is facing a radically changed attitude towards data processing operations, from management but also business environment perspective. We now live in an internet world that does not allow for slacking reactions and inefficient procedures. Action is reaction and efficient reconciliation processes are the key for survival.

Treasurer gets stuck in the middle

To optimize this situation, the Treasurer usually finds himself squeezed between the limited IT budgets for optimizing the connections with his back office environment on the one end and his banks on the other with their multiple banking solutions. While SEPA was presented as a unifying power to align all European banks, in practice there still appears to be a great variety in approaches per bank. So therefore in practice, the Treasurers dreams of a flawless interconnectivity often proved to become nightmares and he most of the time winds up somewhere in the middle of an endless implementation process.

Is there a way out?

The answer is negative as long as the Treasurer remains dependent on the internal IT departments and the offered bank solutions. However, if the Treasurer wants to actively take control of this situation there are now options available that will provide the Treasurer with all the connections and security/ compliance checks he needs for his day to day cash management operations. Instead of using the internal systems, the Treasurer can have his back-office systems (ERP and TMS) connect to the banks via a bank independent (SaaS) platform that will take care of conversion and validation of the uploaded files, the authorization according to the internal compliance guidelines and the routing towards all corporate banks. At the same time the electronic bank statements will be collected and forwarded to the back-office systems for automatic reconciliation in the ERP (and TMS) environment. Apart from the authorization of the transactions, no manual intervention is needed.

Next week Hans will introduce you to his ‘way out’: the SaaS platform.

How can Cash Management influence the Cash Conversion Cycle?

| 27-06-2016 | Olivier Werlingshoff |

How can the Cash Conversion Cycle (CCC) be optimized? The CCC measures the time the money is tied up in the sales and the production process before it’s converted into a cash in from customers. When translated in a formula this will be the DSO + DIO – DPO (Day’s Sales Outstanding + Day’s Inventory Outstanding – Day’s Payables Outstanding).

In this article I will focus on the DSO. Strictly, the DSO is the time it takes for invoices to be paid. I prefer to enlarge this, to the moment you received the order from the customer till the moment the money is on your main bank account.

How can the “enlarged” DSO be shortened with cash management products?

Let’s look at the customer first, how would he prefer to pay?

Card payments:

In the retail sector 50% of the transactions are made by card (credit & debit cards). The other 50% of the transactions are still done by cash. Card transactions are a fast and easy way to receive the money on your bank account. With contactless cards you can even minimize the transaction time, if there is a bottle neck, you can increase your sales by accepting those cards!

The process with cash transactions is more extensive and expensive. You have to save and collect the cash before dropping it at your bank. After a few days the money will appear on your bank account.

Be aware that there are reasons why customers still prefer to make cash payments. Last year I set up a test of 6 weeks of not accepting cash in one retail shop. The total sales dropped with 15%!

Mail with payment link:

When you have the mail addresses from you customers you could consider to send the invoice the same day by mail with a link to the Ideal website. This will encourage your client to choose the payment method you prefer. Furthermore you will save postal costs and paper costs by not sending paper invoices.

Foreign countries:

If you have customers in foreign countries, be aware of the local habits. For example in the US, most of the payments are done by cheques. In the UK and in France cheques are still used as payment instrument. The problem with cheques is that when receiving them, they have to be send back to the original bank before the money will be transferred to your account.

To fasten this process you could consider the possibilities of a local cheque lockbox. With a lockbox your client can send his cheque directly to a local address at a bank and the transactions can be processed immediately. The time that will be saved is the “post time” and the “process time” of the cheque.

International transfer:

If you prefer your customer to make an international transfer, it can be an option to open a local bank account. Depending on the number and the amount of transactions this could save you a lot of transfer costs. To get the money from your local bank account on your main account in The Netherlands there are a lot of cash pool instruments you can use. Jan Meulendijks has written an article last week about how to include foreign bank accounts into your cash pool.

SEPA:

In de SEPA region there are no differences in transfer costs between a national transfer and a transfer between SEPA countries. It is seen as one SEPA region without borders. You can mention your main IBAN number on your invoices and ask your customers to transfer the money direct to your main account.

But even with SEPA it could be an idea to hold a local bank account. In some countries customers still prefer to make transfers to a “national” bank account instead of an IBAN in another country. Some local governments even still oblige you to hold a local bank account for tax payment purposes!

As you can read,besides a good credit management system, there are a lot of cash management instruments that can be used to fasten the payments of your customers.