Essential to any treasury function is the optimisation of working capital, and SEPA delivers on that front as well. SEPA provides improved visibility and access to cash flows, specifically through the reduction of and ability to centralise euro bank accounts. Companies will also be able to simplify their treasury account structures. Although prudent risk management will continue to call for multi-bank structures and a balance of counterparties and credit providers, corporates will be able to cut their number of operational accounts across different markets, improving the control, visibility and efficiency of their daily liquidity. This will also lead to additional benefits. For example, the centralisation of payment and collection accounts will allow simplified and optimised cash pooling structures.
To Plan, or Not to Plan
To date, a real variance has been evident in the way that corporate treasury teams have managed the implementation of SEPA. Much has been driven by the enterprise resource planning (ERP) systems used, the type of business conducted, and the type of payment /collection instruments traditionally employed in Europe. Looking at these drivers and dependencies for change in the treasury payments and collections space has governed the approach of many to the SEPA challenge.
The challenge around ERP systems and the data managed around the payments space – particularly the need for bank identifier code (BIC) and international banks account number (IBAN) for SEPA credit transfers (SCT) compliance and extensible markup language (XML) formatting – has required an investment in change management of data, both physical and format driven. This, in turn, has required resources from IT and the corporate budget for change, which has proven the most significant challenge. We have seen some treasury teams getting ahead of the budget curve and carve out resources in planning for 2013; however others have opted to dive into the game later on, which has proven to be a challenge in securing resource to ensure readiness for February 2014.
Coupled with the details outlined above, there has been the need to ensure that BICs and IBANs are correct for payments, whether to vendors or to employees for salary and other payments. This has been an ongoing project for a number of years and again it has produced mixed results – with some treasury teams fully data ready and tested, but others running to the wire to ensure all the information is correct. There are companies that are supporting treasuries in data conversion and quality for companies with a larger numbers of vendors; this has greatly helped towards building confidence in the quality of their vendor information and readiness for full SEPA compliance.
The collections space and SEPA direct debits (SDD), whether business-to-business (B2B) or business-to-consumer (B2C), has also required investment in time to ensure that data is correct, there is compliance to the relevant schemes and the potential impact on the landscape across the euro payments area. As with the SCT space, it is clear that some treasuries have been ahead of the curve and fully understand what was needed and how they could benefit, while others are now rushing to meet the readiness deadlines.
On a health check, evidence suggests that the large US corporate treasury space – where there are significant business operations that will be fully utilising SEPA – are now ‘stabilising’ after a slow start and there has been a dramatic uplift in activity over the past three to six months in preparations to be fully fit come February 2014.
The Sunshine behind SEPA
Once companies are operationally ready, they should turn their attention to capitalising on the additional benefits that SEPA will provide. SEPA will also act as a catalyst to innovation; for one thing it represents a key driver for XML adoption, allowing companies to benefit from other XML-based initiatives. One example is the electronic bank account management (eBAM) initiative from SWIFT, which gives users transparency and greater control of their data and processes. They will be able to follow the progress of their requests and handle many aspects of their requirements themselves online. Another XML-based SWIFT initiative will let corporates standardise billing statements across several banks, improving price comparison and data analysis.
As companies become more efficient, much as a result of SEPA, they can also tap into the additional benefits recently developed for in-house banking and treasury operations, such as single account/virtual account solutions. These structures enable companies to set up virtual accounts within a master account. Individual transactions can then be easily posted to the relevant virtual account and associated with a particular activity or cost centre. Benefits include improved reconciliation rates for accounts receivable (AR) and a reduced need to make foreign exchange (FX) transactions.
SEPA is poised to deliver a harmonised environment for payments across 33 countries, with common pricing, standards, service levels and legal foundations. Corporates will have a simpler, more transparent and standardised operating environment, paving the way for greater efficiencies that extend well beyond the unit cost of payment transactions. However, the time for action is now. Companies need to look beyond compliance and make plans to take advantage of the opportunities for innovation and transformation, which will in turn pay dividends.
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