A number of banks have moved into the transaction banking space in Italy with competitive and effective products and services designed to meet their clients’ cash management needs. However, there are a few peculiarities a corporate treasurer should be aware of when seeking local cash management services in Italy for a subsidiary.
In terms of electronic banking (e-banking), a key development is Italian banks’ participation in the Customer to Business Interaction (CBI) Consortium, promoted and developed by the Italian Banking Association (ABI). This allows most banks (95%) and corporates to carry out banking services using a common standard framework.
Companies can choose one e-banking product (either web-based or installed in a workstation), as the active connection channel to the CBI infrastructure, and then manage all the accounts held at the other banks with that e-banking tool. The other main user advantage of CBI is the standardisation of formats for payments, collections and account information. CBI standard formats range from Italian proprietary formats, including domestic bulk payments to tax payments or even to single euro payments area (SEPA) Credit Transfers (SCTs) XML-based CBI format.
All urgent and high-value electronic credit transfers (Bonifici Importo Rilevante (BIR)) are settled separately via the RTGS clearing system TARGET 2. BIR payments of more than €500,000 are treated separately as part of Italian Central Bank safety measures. This ensures that the payment is executed faster and more securely via a dedicated gross settlement system. Special care must therefore be taken when instructing bulk payments. Good advice for the person in charge of preparing/instructing the payments is that it would increase efficiency to separate files containing ordinary low-value payments from BIR payments, in order to avoid processing errors.
Making Electronic Payments
Even if the migration to SEPA instruments is approaching its end date, in Italy the acceptance of SEPA schemes is low. This may be due to the efficiency of CBI consortium payments and collection services as well as the advantages of the domestic collection schemes. In Italy, the most common instrument for business-to-business (B2B) collections is the Ricevuta Bancaria (Ri.Ba) while business-to-consumer (B2C) collections (e.g. for insurance premiums or utility bills) are usually performed via the Italian direct debit, Rapporto Interbancario Diretto (RID).
Ri.Ba, meaning electronic receipt, is a fully automated collection scheme issued by the supplier and sent to its customer through the banking network. It is used for one-off payments, meaning that this is not pre-authorised by the debtor (this is the main difference with respect to direct debit). Through its bank the creditor sends an electronic request, from five to 14 working days in advance, for a payment at a certain due date to the debtor’s bank. The debtor’s bank asks its customer, via a written request or an electronic message, for a payment instruction.
If the payment is not carried out at due date, the creditor’s bank receives an electronic unpaid advice for each collection. This means that the supplier account is credited at due date for the whole amount of the Ri.Bas presented and then, in case of unpaids, the related amount is debited into the same account one or two days after due date with the original value date.
Even though Ri.Bas have expiry dates, ‘unpaids’ carry no legal penalty. Each payment is not considered final until unpaid notifications have reached the creditor. Therefore, if the enterprise resource planning (ERP) system rules concerning accounts receivable (A/R) prevent this approach, the use of intermediate accounting should be considered. This scheme confers some advantages, since the supplier directly initiates the payment process and it is a fully automated collection instrument that allows a 100% reconciliation rate through collection reports. In addition this is a widely-used, very well known and accepted collection system in Italy.
Most commonly used on the B2C side, the Italian version of the direct debit requires both the agreement between the creditor and the debtor, and the mandate signed by the debtor sent to his bank for acceptance. A specific procedure is put in place to fulfil these requirements. This makes the creditor in charge of getting the given mandate signed and remitted to the collecting bank, which in turn sends out these mandates in electronic form to the respective debtors’ banks. The debtor bank sends an electronic message back to the creditor bank, confirming or rejecting authorisation.
The settlement process is almost identical to the one quoted for Ri.Bas and the RID cycle is very similar: the creditor sends out an electronic request for payment (from two to six days in advance of the due date); if the payment is not made at due date, the creditor gets an unpaid notification for each collection and the related unpaid amount is debited into the creditor account. The use of RID collections can become cumbersome if the corporate’s IT organisation is not well-established, since the management of the direct debit mandates (which can be both electronic and paper-based) can bring in a certain degree of complexity.
Reporting will be managed electronically in any case, meaning that the receipt of a notification informing about any relevant event concerning a given mandate is subject to the use of either a specific treasury infrastructure or more simply of a local electronic banking tool.
Both Ri.Ba. and RID presentations to banks are usually made under reserve and can be used against a credit line. Ri.Ba. and RID facilities, however, are usually cheaper as part of an overdraft facility, since they are backed by receivables already presented at the bank.This allows an increased efficiency in terms of costs sustained for working capital management.
Italian tax payments cannot be instructed via a standard wire transfer as they are in most countries, but there is a specific type of payment for taxes and social security charges, namely the F24 and F23 forms, which require all the specific transaction details (e.g. tax codes, etc.) to be included. In addition, due to Italian legislation, tax payments can only be made electronically. Consequently, a domestic electronic banking platform is required for such payments. Alternatively, payers can use the dedicated portal set up by the Italian tax authority that allows registered users to pay F24 online. Special care should be taken with reference to value dating conditions applied to tax payments, which can cause reconciliation problems or a liquidity mismatch.
Cheques are still widely used as payment instruments, especially among small and medium-sized enterprises (SMEs) and more in the southern part of Italy than in the north. However, the usage of paper-based payment instruments has declined over time in favour of electronic methods. When using cheques in Italy, the following should be considered: in Italy, cheques are assimilated to bankers’ drafts – if unpaid, they can be contested. This process requires the physical deposit of cheques at a public official within a stated term, depending on the type of cheque. Therefore it is very important that cheques are deposited within those time limits. The Italian postal service is not currently sufficiently reliable for this matter. For this reason, lockbox services are not offered in Italy. Also, the use of a ‘Positive Pay’ system, matching amounts and beneficiaries in order to avoid fraud, has never been considered. Since July 2010, Central Bank reporting is no longer mandatory for cross-border payments and collections in Italy. Data will be collected by the Central Bank using a direct reporting system.
Finally, no matter whether a regional or global overlay banking structure has already been implemented at headquarters, cash concentration needs will in any case arise at the subsidiary level. In this regard, one can consider the implementation of physical cash pooling, as this is a well-known and established technique in Italy. In companies where a decentralised cash management structure would seem to suggest the use of notional pooling, the idea may not be realised due to certain Italian legal requirements. Indeed, legislation only permits pure effective pooling. Owing to taxation levied on interest, no form of compensation between credit and debit interest is allowed, which effectively eliminates the possibility of establishing notional pooling in the country.
Given the peculiarities of the Italian transaction space, banking services from a local bank look attractive for domestic business. In addition, local cash management specialists should be consulted in order to properly take into account the country specifics and effectively streamline local cash management operations prior to the centralisation of processes and payments.
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