Treasury managers face increasing challenges in the present economic environment. However, the challenge of maintaining accurate bank reference data within enterprise resource planning (ERP) systems is not a new one. Keeping vendor, agent and employee bank records up to date usually involves a mixture of manual outreach to suppliers and employees as well as gathering the various bank codes from the local issuing authorities in the countries where the organisation conducts business. Both of these requirements have their challenges.
Gathering Timely Bank Information from Suppliers and Employees
A global organisation has many reasons for wanting to maintain strict control of its accounts payable (A/P) environment. Firms must ensure that supplier covenants are being met in order not to breach contractual payment terms. The automation and expedience of employee salary and expense payments is crucial to maintaining the smooth operation of the business, not to mention keeping employees happy and motivated. However, it is clear that increasing the speed at which both of these groups are paid has an impact on working capital and liquidity. The general consensus among global corporates is that payment efficiency is in their own best interest.
Perhaps a more relevant question is whether a supplier or employee is aware of changes to their own bank routing information. Every day bank branches open and close. Additionally banks reorganise their payment hubs, which has an impact on bank branch codes and potentially even the relevant SWIFT code for more efficient payment routing.
Since the inception of the single euro payments area (SEPA), global corporates have been seeking to modify their vendor and employee on-boarding policies and systems to ensure that all euro bank account records contain an International Bank Account Number (IBAN) and the correct associated Bank Identifier Code (BIC). Over time global organisations’ supplier and employee databases have grown in terms of the inclusion of IBANs and BICs and this growth is set to continue as more countries choose to adopt IBANs as their de-facto standard for payment processing. It’s interesting to note that, while IBANs have traditionally been seen as an initiative for euro payments within SEPA, many countries outside the eurozone have become or are in the process of becoming IBAN-compliant, including Turkey, Tunisia, Lebanon, Saudi Arabia, Kuwait, United Arab Emirates (UAE) and Mauritania. With the European Commission (EC) announcement last December that it is phasing out national payment schemes in favour of SEPA over the next two years there is now a compelling impetus for global organisations to convert the remaining legacy account numbers, or basic bank account numbers (BBANs), to the IBAN and BIC format.
Gathering Bank Code Information from Local Issuing Authorities
ERP systems providers such as SAP have provided the means for organisations to upload the various local clearing codes into their bank databases using standard interfaces. But as a method of collecting this information, reaching out to various in-country providers of local clearing information can be a costly and time-consuming process. Often, global organisations rely on their local operations to collect and compile the local bank codes from individual countries that are then aggregated at their corporate headquarters. Once collected, each individual country’s bank codes must be loaded into the central ERP system.
Collecting bank codes can be a daunting task. Multinational corporates typically need to gather data sets from dozens if not hundreds of different sources. Each source will vary in terms of the way the data is formatted, the frequency with which the data is updated and the degree of accuracy. Assuming a corporate can successfully navigate these various hurdles, there is still the matter of combining these different data sets to create a normalised, fully integrated and cross-referenced data source. For example, a bank office in New York City may have an American Bankers Association (ABA) code, a Clearing House Interbank Payments System (CHIPS) code and a BIC. It’s very challenging for a corporate to combine data from many disparate sources and understand how best to cross-link thousands of records to create an accurate database for effective payment routing.
The ongoing maintenance of this ‘static’ data can be an even bigger challenge. There are over 750,000 bank branch locations worldwide. Bank mergers and acquisitions have a profound impact on the amount of data change and typically require an army of data professionals to properly maintain it. Any lapse in this regard would result in an increase in failed payments, increase in float costs and a resulting increase in non-straight-through processing (STP) bank fees. Depending on where and for whom these transactions are destined, further complications may arise in terms of disruption in production, delivery and sales operations.
Establishing a Global Policy on IBAN Conversion and Payments Data Maintenance
Meeting the SEPA end date requires corporations to ‘forward-fit’ their vendor, supplier and employee account databases from national-level basic BBANs to IBANs. This task is more complex than simply addressing the content of the database as it also encompasses the structural validity of each individual bank account number. Each country in the SEPA region has domestic account algorithms and structural rules and some countries, such as Germany, have algorithms at the individual bank level. Ultimately, the definitive sources for obtaining IBANs for a corporation’s payees are their vendors, suppliers, and employees. Realistically, however, undertaking such a collection effort is a monumental task that is both costly and very time consuming. Fortunately there are a number of reputable third-party firms that provide IBAN generation and validation. However not all firms offer the same level of accuracy and service in this regard. In fact some firms merely apply the BBAN into IBAN formulary without determining the validity of the underlying bank clearing code or national-level basic bank account number while others omit the provision of the correct routing BIC for IBAN payment processing. Therefore, it is highly recommended that corporate treasurers perform a rigorous review of the available vendors in the market to understand what validation checks and sources of bank data are being used to generate accurate IBANs with the correct routing BIC.
While the challenge of maintaining a global database of accurate bank codes and the ability to generate accurate IBANs is a daunting task, with the right partner to assist, it is a process worth undertaking. The end result will be a reliable, accurate and effective database that will facilitate payments and help the organisation meet its A/P goals.
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