Tag Archive for: treasury

Corporate Trade Finance Products : Letter of Credit

| 11-10-2018 | by Nijay Gupta | treasuryXL |

What is Letter of Credit/Documentary Credit under UCP 600 – ICC  Paris:

A letter of Credit is a sort of Guarantee issued by a Bank – Opening Bank, on behalf of a buyer(applicant) favouring the seller (Beneficiary) to honour the  compliant documents presented thru a Bank (negotiating bank) in terms of the LC conditions. In order to secure payment, the Supplier of goods is given a sort of guarantee by the buyer’s bank to pay (at Sight or Usance or Deferred Payment) on presentation of Documents in terms of LC.  So, the LC can provide payment on Sight Basis, Usance Basis or Deferred Payment Basis, based on the Terms of Payment agreed between Supplier & Buyer. The buyer/Opener of the LC is assured Delivery of Goods within the dates of shipment mentioned in the LC.

LC is also known as Documentary Credit, as banks deals in documents and not in goods.

The LC is governed by the UCP 600 (2007) Revision publication by ICC, Paris, provides the set of rules governing LC in Domestic/International Trade in almost all 175 countries. The 39 Articles of UCP 600, gives the details of the various types of LC’s, role/rights/liabilities of various parties i.e.

  • Opener/Applicant (buyer),
  • Beneficiary (seller),
  • Issuing Bank (buyer’s bank),

Advising Bank (Correspondent bank of the LC issuing bank), may act as LC Transferring or Negotiating Bank too for the availability of LC for Negotiation leads to be known as : Restricted LC or LC avaialable with…. Bank

Negotiating Bank (Generally Sellers Bank),

Re-imbursing Bank (generally overseas correspondent bank, where the LC issuing bank maintains its Nostro a/c).

The articles also provide the way various Documents like Bill of exchange, Invoices, Cerifiticate of Origin, BL/AWB, Inspection Certificate, Insurance Policy etc to be preapred and presented to the LC Issuring bank for Payment (Sight document), Acceptance & Payment (Usance/Deferred Payment documents).

What are the various Types of Documentary Credit:

Irrevocable:  The LC, which can not be cancelled/amended without the consent of all the parties to the LC, is the most common type of LC is used in Domestic/International Trade. In this, the LC issuing bank guarantees the payment of LC as per the Tenor of the Documents on presentation of compliant documents to the beneficiary..  This is the  most common type of LC is used in domestic/international Trade. All types of LC’s are Irrevocable, unless a bank issues Revocable LC, specifically. UCP discussed only about issuing of Irrevocable LC, though the banks can issue Revocable LC or combination of other types of LC as below.

Revocable LC, (which could be cancelled by LC issuing Bank or Applicant without the consent of Beneficiary before the shipment is made) is not in practice and not provided in UCP 600, though the same can still be established by the LC Issuing bank at the request of the Applicant. Irrevocable Confirmed:  In this type of LC, the Payment Guarantee is given by LC Advising or a Bank nominated by LC issuing Bank . The bank adding confirmation to the LC is done only at the request of LC issuing bank and the Conforming bank can be in the country of exporter or elsewhere. Since this type of LC requires payment of confirmation charges by the Beneficiary, the use of this type of LC is restricted in case of Geo-political conditions in the buyer country or high risk buyer only.

Irrevocable Transferable: The LC which can be transferred by the Advising Bank at the request of Beneficiary, in part/full or for lesser amount by keeping the profit for the beneficary of LC.  Once LC is Transferred, it can not be transferred back to Benficiary of LC.  Under this, the LC Transferring bank is the only bank authorised to Negotiate/Pay for documents over and above the LC opening bank

Irrevocable Confirm:   LC can be confirmed by a bank in Beneficiary’s Country (generally done by LC Advising bank) or by a bank in other country, when beneficiary is not very sure about the standing of the LC issuing bank or Geo-political situation in buyer’s country. LC is confirmed at the request of LC issuing bank and Confirming bank may ask beneficiary to pay for the confirming charges.  On presentation of documents, confirming bank shall becoming like LC issuing bank and is bound to pay/accept documents, as per LC conditions.

Irrevocable Back to Back:  Its not provided in UCP but its used by Beneficiary for opening another/local LC backed by the Original LC on same terms and conditions to provide security for payment for supply of goods to the origianl beneficiary .

Irrevocable Revolving:  This type of LC provides flexiblity of Re-instating the amount of the LC, on utilisation of the LC amount by exporting the goods as per terms of LC.  This type of LC is usefull, for exports of different goods at different period without committing the total value of all exports in one LC. This reduces the requirement of lower LC limit or Cash margin for opening of the LC by applicant (importer).

Irrevocable Stand-By LC:  This was inititated at the time when US banks were not authorised to Issue Guarnatees or take Guarantees .  But this is very popolus amongst the suppliers of goods and services in today’s time all over the world.  This type of LC, provides a guarantee to the supplier of services, equipments, airlines etc to be paid on completion of the serives or agreed time period.  Its very common in Airlines and Equipment suppliers on lease or rental basis.

Which type of LC is desirable in Domestic & International Trade:

An Irrevocable LC is quite fine, which allows payment on compliance with the LC terms and this also allows surety of shipment by exporters within the terms mentioned in the LC, though there is no guarantee of quality of goods being supplied by the exporters.  That is why Banks say, Bank Deal in Documents and not in Goods and its known as documentary credit.

Should there be a Geo-political situation in the LC issuing bank’s country or the standing of the LC issuing bank can not be established, its better to go for a Confirmed LC.  Other types of LC’s are practiced based on the requirement of Importer and Exporters in Trade.  LC can have a combination of types of LC together too and i.e. Why LC is the most flexible instrument used in Domestic and International Trade.

What Importer (Applicant) should do before opening LC:

  1. Get the detailed report of the Supplier from their banks interms of their Standing, Line of business, other business dealings, sanctions on the country etc
  2. The previous experiences of others with the supplier & Country Risks, or Sanctions
  3. Get the lines set-up by the Bank for opening of the LC
  4. Apply to bank for Issuing LC along-with Proforma Invoice or Confirmed Order
  5. After bank’s issuing LC, ensure, LC is recieved by the Supplier with same terms of Proforma Invoice or confirm order

What Exporter (Beneficiary) should do on receipt of LC:

  1. check all the terms & conditions of LC as per Proforma Invoice or confirm order.
  2. Check Incoterms and Terms of Payment
  3. Check the names of various parties, goods, addresses, requirements of shipments, Incoterms, LC payment terms, Inspection Certitificate, Certificate of Origin, Insurance & other special documents requirments like Weight/analysis/Packing Certificates etc.
  4. Get the LC confirmed, if the same was desired and the same has been requested by the LC issuing bank to the LC advising bank
  5. Get the LC amended, in case exporter can not comply with any conditions or terms of LC
  6. Meanwhile, the exporter can start with Manufacturing or arranging for the goods for shipment
  7. Can request for fixing lines and ask ask for Pre-shipment and Post shipment finance against LC and presentation of documents
  8. Exporters should ensure compliance of all terms and conditions of LC, before presentation of documents for payment/acceptance by the Negotiating or LC issuing bank to get protection under UCP 600 of ICC, Paris

What is the future of LC in view of E-Banking and Online business/trade:

Though most of the business is overtaken by online operators, the need for LC shall continue at least for next 25 years.  In order to get well worsed with LC, I suggest all to read articles UCP 600 of ICC, Paris and practice with various types of LC, rights & responsibilities of the LC Issuing Bank, Advising Bank, Negotiating Bank, applicant, Beneficiary & Confirming/Re-mbursing/Transferring banks etc in usage.

 

 

Nijay Gupta

Founder & CEO NK GUPTA Consulting

 

 

Partnership Cashforce and BNP Paribas

| 03-10-2018 | Cashforce | treasuryXL |

BNP Paribas and Cashforce enter into a partnership to offer digital cash flow forecasting and working capital services to corporate treasurers. Through this partnership, BNP Paribas will offer to its clients Cashforce’s next-generation digital cash forecasting and treasury management solutions, focused on analytics, automation and integration. To further extend its commitment to this partnership, BNP Paribas also invested in Cashforce.

Pursuing the digitalisation of its Corporate clients’ user experience, BNP Paribas today announced it has sealed a partnership with Cashforce, a Fintech company that will allow the Bank to enhance client journeys within cash management and trade finance. Through this partnership, Corporates will experiment a digital, autonomous and cross-banking solution for their day to day transaction banking needs: by connecting its treasury department with other business and finance departments, and by offering full transparency into the cash flow drivers, accurate and automated cash flow forecasting and treasury reporting.

BNP Paribas continues to invest in its digital offering to treasurers and this partnership – which brings the transaction banking business another step closer to open banking – reflects its technology-centric focus and leadership. The platform is unique in its category because of the seamless integration with numerous ERP systems and financial data sources, the ability to drill down the transaction level details, and the intelligent AI-based simulation engine that enables multiple cash flow scenarios, forecasts and impact analyses.

“This partnership with Cashforce marks a new step in our digital transformation and illustrates our commitment to offering our clients the best-in-class solutions they deserve, wherever they come from. Forming agile partnerships with innovative Fintechs like Cashforce, who leverage new technologies such as AI, helps us to significantly accelerate the digitalisation of our customer journey in the area of transaction banking,” commented Jacques Levet, Head of Transaction Banking EMEA BNP Paribas.

“The partnership with BNP Paribas will further boost our international expansion and make more treasury departments work with accurate, efficient and best-in-class cash flow analytics and cash forecasting solutions. Also our working capital analytics engine will further strengthen the integrated banking and trade finance experience for BNP Paribas’s clients.”  added Nicolas Christiaen, CEO of Cashforce.

The platform will be available to clients through CENTRIC, BNP Paribas’ integrated digital banking platform that gives corporate & institutional actors instant access to the spectrum of BNP Paribas’ online financial services.

The full article can be read on the Cashforce website.

BNP Paribas also posted an article about the partnership which can be found here: https://group.bnpparibas/en/press-release/bnp-paribas-cashforce-enter-partnership-offer-digital-cash-flow-forecasting-working-capital-services-corporate-treasurers


Cashforce – Cash forecasting & Smart Treasury

[button url=”http://www.treasuryxl.com/community/companies/cashforce/” text=”View company profile” size=”small” type=”primary” icon=”” external=”1″]

[separator type=”” size=”” icon=””]

 

Masterclass Blockchain

| 01-10-2018 | treasuryXL |

Samen met IJsselvliet Strategie & Realisatie organiseert The Perfect Fit op donderdag 11 oktober 2018 een Masterclass over het thema blockchain.

Blockchain wordt gezien als de grootste IT-revolutie sinds de opkomst van het internet. Traditionele transacties worden door deze technologische ontwikkeling sneller, veiliger en transparanter: blockchain kan voor de revolutie in de 21e eeuw gaan zorgen!

De blockchain is de onderliggende technologie van de cryptovaluta bitcoin. Maar er zijn veel meer toepassingen dan cryptovaluta. De disruptieve kracht van de blockchain-technologie blijft niet beperkt tot de financiële wereld. Zo kunnen bijvoorbeeld eigendomsregistraties in de toekomst via blockchain worden beheerd. Dergelijke toepassingen zullen aanzienlijke gevolgen hebben voor de positie van makelaars, overheden, onderwijsinstellingen, controllers, toezichthouders, juristen, notarissen en accountants. Dat blockchain voor grote veranderingen gaat zorgen en aanzienlijke gevolgen zal hebben, is een feit.

Tijdens deze middag gaan we met elkaar op verkenning over de (on)mogelijkheden van de blockchain en de consequenties met toepassing op organisaties. Na een eenvoudige uitleg wat het is en waarom het mogelijk disruptief kan zijn, komen de volgende vragen aan de orde:

  • Wat kunnen de gevolgen van de blockchain-technologie zijn voor samenleving en organisaties?
  • Wat zijn nu al toepassingen van de blockchain-technologie voor bedrijfsvoering en verdienmodellen van bestaande en nieuwe producten en diensten?
  • Wat betekent dit voor uw organisatie en uw klanten? Waar zitten kansen en bedreigingen?

Praktische zaken

De masterclass wordt van 13.00 uur tot 18.00 uur georganiseerd bij Landgoed de Salentein te Nijkerk. Aansluitend dineren wij met elkaar waarbij uiteraard ook gelegenheid is bij te praten. De kosten van de masterclass bedragen € 295 excl. BTW.
Inleiders zijn de heren Erwin en Thijs Giesbers, beiden al vanaf het begin actief met de blockchain. Zij kunnen er boeiend over vertellen en doen dit uit eigen ervaring, concreet en vooral praktisch. Van harte aanbevolen!

Aan deze masterclass worden 4 gecertificeerde PE punten toegekend. Inschrijven kan via de website van The Perfect Fit of door een e-mail te sturen aan Charlotte van Weerd: [email protected] . Wilt u – wanneer u interesse hebt in de PE-punten – dit aangeven bij uw inschrijving? Graag ontvangen we dan tevens uw voorletter(s) en eventuele titel(s).

Reminder Event: INTERNATIONAL TREASURY MANAGEMENT CONFERENCE 26-28 Sept @ EUROFINANCE

| 17-09-2018 | Eurofinance | treasuryXL |

Join the global treasury community at EuroFinance’s  27th International Treasury Management conference on 26-28 September 2018. This year, we look at how to prepare treasury for the future – because it is no longer enough to just deliver on treasury’s core responsibilities.

New technology, business model disruption and unprecedented compliance, regulation and geopolitical issues will change the profession beyond recognition. Treasury needs to react and adapt.

  • Discover which tech is relevant to you and how to future-proof your treasury
  • Hear how to be proactive, work with the rest of the business and keep treasury relevant
  • Learn how others are seizing the opportunity to review everything from staffing to structures

This fresh new programme is based on over 1,000 interviews and discussions with treasury professionals around the world. It will deliver cutting-edge content, real-life case studies and thought provoking big picture sessions.

Network with an unparalleled senior audience of 2100+ delegates from over 50 countries. Find out what to expect here: https://bit.ly/2Nv8RI3

For more information or if you want to register for the event visit the events website.

 

[button url=”https://www.treasuryxl.com/contact/” text=”Contact us” size=”small” type=”primary” icon=”” external=”1″]

[separator type=”” size=”” icon=””]

5 steps for optimizing payment transactions

| 13-09-2018 | TIS | treasuryXL |

They are one of the most important economic transactions and since all times have provided us with order and structure, but at the same time they have been a nuisance, because they are equally complex and essential. They come in the form of cash payments, semi-cash payments and non-cash payments, with the latter definitely at the forefront. But in order to organize payment transactions optimally, there are a few things that need attention.

In this article you will find out everything on how to renew your payment transactions, making them more transparent, simpler and more secure. At the same time, you can keep up with digital transformation.

Step 1: Getting an Overview

Regarding innovations in payment transactions, there are many items that require attention. For this reason, it is important to get an initial overview of the current payment transactions situation and a breakdown of the complexity of the factors contained in this term. You should be able to answer questions regarding current payment formats, including abroad, bank communication and possible bank connections before you start making any changes. You should also take into consideration your own payment transactions, in order to recognize weaknesses and potential improvements. Only then will you know if there is still potential for optimization and where the innovation process needs to start.

Step 2: Setting Goals

As is the case with successfully mastering any task, it is important to first set goals in advance and to monitor the results to be achieved. In this way, you prevent inaccurate or unwanted results and a lengthy change process. In order to define your goals, you should compare and consider the potential connections to the bank, systems and formats which are to be used in the future. Moreover, an initial conceptional model of the potential new banking landscape should be developed.

Once the first two steps have been carefully considered, it is down to the nitty gritty: making better decisions.

You can read the full article on the website of Treasury Intelligence Solutions GmbH.

 

[button url=”https://www.treasuryxl.com/contact/” text=”Contact us” size=”small” type=”primary” icon=”” external=”1″]

[separator type=”” size=”” icon=””]

Treasury is dead. Long live treasury?

| 11-09-2018 | Eurofinance | treasuryXL |

 

If Global Business Services models can do a better job at HR, procurement, networks, IT and data analytics, why doesn’t it just take over treasury? At some firms, it’s already happening.

Shared services are again all the rage as companies search for the short-term wage arbitrage of offshoring. At the end of 2016, Warner Music Group announced the creation of a new US centre of excellence for Shared Services in Nashville, Tennessee, to aggregate its US Accounting Operations, Cash Management and Recorded Music Rights Administration. In June 2016, Eltel announced its intention to establish a new Global Shared Services centre in Poland later this year. The decision has now been taken to locate the centre to Gdansk. The centre will provide all Eltel businesses globally with support services in the field of finance, human resources and procurement. And Nestlé, as part of an ongoing programme of structural cost saving, has recently set up two more SSCs, one in China and one in Portugal taking the total to nine.

Initially, treasury is in control of the outsourcing of its functions. The creation of one or more shared service centres is driven by a corporate desire for lower-cost, higher efficiency processes. Treasurers’ solution has been to centralise treasury operations and to outsource non-strategic treasury processes.

Typically, this process starts with streamlining bank account structures, bank account management and pooling mechanisms, often by moving to a single banking partner. This eliminates manual processes, creates greater cash visibility and gives treasury access to real-time information, allowing it to develop better cash forecasting and insights into the underlying businesses. Standardisation is achieved through the adoption of ISO standards or the creation of company-wide process templates.

The full article written by Simon Brady can be read on the Eurofinance website.

 

[button url=”https://www.treasuryxl.com/contact/” text=”Contact us” size=”small” type=”primary” icon=”” external=”1″]

[separator type=”” size=”” icon=””]

Reminder Event: TOMORROW’S EUROPE: Uncertainty and unprecedented opportunity

| 10-09-2018 | Reuters | treasuryXL |

Join this dynamic discussion where a panel of economic, geopolitical and business experts will explore what ‘Tomorrow’s Europe’ may look like.

Europe is at a crossroads. It faces many challenges – from globalisation and geopolitics, to the impact of new technologies and trade agreements. But change also brings great opportunities for the brave and adaptable. Above all, innovation, entrepreneurship and investment will be the foundations of future prosperity. And businesses – as the main creators of jobs and growth – have a pivotal role in determining what ‘Tomorrow’s Europe’ will become.

Our expert panel will discuss

  • What will drive economic growth?
  • What are the geopolitical factors that lie ahead?
  • Which businesses and markets will bring investment to the region?
  • What will propel innovation and competition?
  • How new regulations and a post-Brexit trade landscape will shape the decades to come

All this, and much more, up for debate at the Axica, Berlin on 19 September 2018.

Agenda

6:30 pm: Arrive and sign in
7:00 pm: Welcome and introductions
7:10 pm: Panel discussion
8:00 pm: Audience Q&A
8:30 pm: Networking drinks reception

Meet the Speakers

(Additional panellists to be announced shortly)

Özlem Bedre-Defolie

Associate Professor of Economics, ESMT

Özlem Bedre-Defolie is an associate professor (with tenure) of economics at ESMT Berlin. Her research has been published in leading Economics, Marketing and Industrial Organization journals, including American Economic Review, Journal of Economic Theory, American Economic Journal: Microeconomics, Marketing Science, International Journal of Industrial Organization.

Ferdinand Fichtner

Head of Department, DIW Berlin

Dr. Ferdinand Fichtner is Head of the Forecasting and Economic Policy Department at DIW Berlin. He holds a Ph.D. from the University of Cologne and wrote his dissertation thesis about the effects of monetary integration on economic welfare. He is one of the leading German experts on macroeconomic policy, with frequent appearances on national and international media and close connections with German and European policy makers.

Josef Janning

Head of European Council on Foreign Relations, Berlin Office

Josef Janning joined the European Council on Foreign Relations in April 2014 as Senior Policy Fellow in the Berlin Office. Josef has published widely on European Affairs, International Relations, EU foreign and security policy, German foreign and European policy as well as global affairs. On these issues he also is a frequent commentator with German and international media.

Panel Moderator: Vanessa Cuddeford

Vanessa Cuddeford is a journalist and presenter with 15 years’ experience. She anchors and reports for the BBC and Reuters, regularly presenting news, arts and business programmes for international broadcasters.

This event is for:

Business leaders / senior executives / entrepreneurs

For more information or if you want to register for the event visit the events website.

 

[button url=”https://www.treasuryxl.com/contact/” text=”Contact us” size=”small” type=”primary” icon=”” external=”1″]

[separator type=”” size=”” icon=””]

PGO Treasury and Corporate Finance (RT) @ Vrije Universiteit Amsterdam

| 14-08-2018 | VU Amsterdam | treasuryXL |

PGO Treasury and Corporate Finance (RT) will start shortly – only a few places left

In previous blogs we informed you about the post graduate education treasury at the Vrije Universiteit in Amsterdam. This will be the first year that the program will be in English. As in previous years, a nice mix of treasury experts with different professional backgrounds will start in September. The VU informed us only a few places are left.

In this link you can read more about the program and see a short youtube posting about corporate treasury.

Best read articles of all time: Treasurer en controller; een paar apart ?

| 10-08-2018 | Jan de Kroon | treasuryXL |

collaboration-1106196_640De treasurer en de controller zouden twee handen op dezelfde buik moeten zijn, maar de vraag is of dat in alle, of zelfs de meeste, gevallen wel zo is. Enkele uitzonderingen daargelaten, zijn de verschillen groter dan de overeenkomsten.

Kort door de bocht zou je kunnen stellen dat de treasurer zich met het financieren van de operatie bezig houdt aan de passiefzijde van de balans. De controller houdt zich dan bezig met vooral de operatie waarvoor die middelen aan de actiefzijde zijn aangewend en zorgt ervoor dat die cash ook weer beschikbaar komt voor de verschaffer van die middelen. Beiden spelen een belangrijke rol in de cash conversion cycle en als het goed is, stemmen ze hun belangen onderling goed af. De praktijk leert echter dat het in veel gevallen niet zo rooskleurig verloopt in de afstemming.

De treasury functie onderhoudt een brug tussen de financiële belangen van de eigen organisatie en ontwikkelingen op de financiële markten er buiten. Hij zorgt voor blijvende toegang tot bronnen van geld, beschermt vermogen en resultaat tegen financiële risico’s en beheert een superieure en kosten-efficiënte financiële infrastructuur. Daar is weinig op tegen te hebben; voorwaar een nuttige rol die op begrip van iedereen kan rekenen. Althans, dat zou je denken.

Toch gaat het in de relatie vaak verre van soepel. Meestal omdat ze niet alleen een andere taal spreken, maar ook elkaars wereld niet echt lijken te kennen; laat staan echt begrijpen. De treasurer heeft een groot belang bij juiste, tijdige en volledige positie informatie en verwacht die van de controller te ontvangen. Zich niet realiserend dat de controller het belang vast wel onderschrijft maar in zijn eigen business unit met een vergelijkbaar vraagstuk worstelt; hoe krijg ik in des hemelsnaam tijdig betrouwbare informatie uit de lijn en het primaire proces. Voor eigen gebruik in het veld, maar ook om een collega op het hoofdkantoor een plezier mee te doen.

Anders dan de gemiddelde treasurer is echter de controller een vogeltje dat minder goed gebekt is en mede daardoor niet altijd lijneenheden kan overtuigen van nut en noodzaak van tijdige prognoses op basis waarvan de treasurer zijn randvoorwaarden beter kan inregelen. Om dat op te lossen en betere positie-informatie te verkrijgen uit de operatie, is een aantal elementen van belang:

1. Zorg er voor dat treasurer en controller elkaar beter leren begrijpen. Dat kan door meer in te spelen op business partnership dan ‘leverancier-afnemer’;

2. Zorg voor een beter financieel economisch bewustzijn bij de lijn. Dat kan door bijvoorbeeld het hanteren van feedback en feed forward technieken maar ook door het benoemen van lokale treasury referenten in het primaire proces;

3. Zorg dat de verantwoordelijkheden scherp zijn gedefinieerd. Daarmee zorg je dat tenminste iemand zich verantwoordelijk voelt voor de juiste positie op het juiste moment;

4. Een periodieke treasury nieuwsbrief kan helpen bij het vermijden van ‘ver-van-het-bed-shows’ en het verkleinen van de communicatie-kloof.

Zo komen de handen weer op één buik.

Jan de Kroon

 

Jan de Kroon

Owner & Managing partner of Improfin Groep

 

Best read articles of all time: Do treasurers really need instant payments? some implications.

| 03-08-2018 | Patrick Kunz | treasuryXL

 

 

Per 13 January 2018 we have a new payments service directive (nr. 2) live in the European union, PSD2 for short. One part of PSD2 is the possibility for banks to offer instant payments between banks in the EU. Within max 10 seconds money flows from one bank to the other, also on weekends and on holidays. In this paper I want to discuss the implications for treasurers of instant payments.

Cash flow forecasting

Forecasting is an important part of the daily/weekly routine of a treasurer. He/she needs to predict the future to know his cash/risk/financing position. On the ultra-short term spectrum of this forecast a treasurer might use intraday bank statement (MT942) to take into account the incoming funds during the day. These are often updated hourly. With instant payments a treasurer can have a look at their bank account and the balance that is showing is the real-time balance with all incoming transactions being settled. As said before a treasurer might already have intraday statements but there is (1) a time lag in those and (2) there might be transactions not processed yet. Bottom line this difference amounts to several hours lag. Depending on the size of the company and the amount and size of transactions there is some impact but not very sizeable. Furthermore, those treasurers that do not use intraday balances for their forecasting have no impact of instant payments. However, how about the due payments on non-working days? In the future these are normal payments dates. Previously due payments on weekends are either set on Friday or Monday depending on the terms of the contract. These could now be forecasted on the exact day. But that depends, payments are often done during business hours, so it is possible that nothing changes. Depending on the size of the transactions there is importance to check this with your suppliers and clients. This also depends on bank processing of yourself and your client/supplier.

Bank processing

Instant means instant in time but also in days. In the past we were dependent on the opening hours of the banks and later of the ECB. That could mean that if we send money just after close on Friday and there was a public holiday on Monday we would only see the money coming in on Tuesday. The money was “lost in translation” in between. This is not very modern in an age where we send an email from Tokyo to South Africa in minutes but not money. We could literally fly there with cash and be faster. After all banks have implemented PSD2 money flows 24/7. So also in the weekend and on holidays. This has an impact on the processing of your bank statement. You now receive bank statement for Saturday and Sunday. Most accounting/treasury departments do not work on the weekends so there is a chance that these statements are not processed. This means you must process 3 statements on Monday. Some companies have automatic processing of bank statements, so the weekend statements might be processed but not (automatically) consolidated leading to more open positions on Monday. Ok big deal, there is more work to do on Monday due to more bank statements. But there is more: not necessarily for treasury departments. Think about customer services (helpdesk) departments. If a client with an overdue payment calls it would be great if the helpdesk employee is able to verify statements of the customers if the says he has paid or will pay immediately. This however only works if processing is automatic or if the helpdesk employee can access/search the incoming payments on the bank account (which might not have processed in accounting). Not all companies will have this yet. Overdue calculations might be faulty in some ERP systems as only working days are considered. If a payment is due on Sunday, you can pay on this Sunday and not necessarily on the Friday before.

Conclusion

Instant payments are only a fraction of PSD2 which is often not very interesting for most treasurers. They get some information faster but that does not really help them too much. There is however more to it. Since payments can now arrive and be made in the weekends the cash flow forecasting should now contain 7 days in a week instead of 5. Payment can be spread out more but also receipts will be. Bank processing is more work; 7 daily statements per bank account per week instead of 5. Extra processing or extra automation needed. The extra information might be needed by other departments too even though the treasury/accounting department is not working.

Overall the implications could be bigger then you might think and are different for every company and depending on their existing (bank) processing.
Most bank are planning to introduce weekend reporting by H2 2018 while instant payments are due beginning 2019. For business transactions this might even take until H2 2019.

Some time left but a good time to already think about your current processes in comparison to the new reality under psd2. Treasury is moving to a 24/7 information economy. It’s about time.Time will tell if there will be fintech’s stepping in helping with above issues with direct connections to the bank, which is another important part of PSD2 but not within the scope of this article.

If you need help with automating your bank statement processing or with your cash flow forecasting, then look at this author and other Flex Treasurers on this website for answers.

Patrick Kunz

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