Survey Results: How Will SEPA Affect Accounts Receivables Processing?

The introduction of the Single Euro Payments Area (SEPA) from 2008 promises corporates the substantial benefits of making and receiving payments within the eurozone with the same ease and efficiency – and at the same cost – as they currently do domestically. This will provide European corporates with further opportunities to improve and centralize their payables processing and, in particular, give them the ability to control their payables flow using fewer banks and reduced infrastructure and systems. Importantly, SEPA also provides corporates with the valuable opportunity to re-engineer their accounts receivables processing.

In September 2006, gtnews readers participated in a survey about the impact of SEPA on their accounts receivables processing. This article considers the key results of the survey and identifies where and how SEPA will affect this area of an organisation’s business.

Impact on Cash Conversion Cycles

SEPA will introduce increased standardization and therefore enable corporates to consolidate and centralize their transaction processing by using fewer bank accounts. “With greater standardization of payment and collection instruments, and a general reduction in the number of bank accounts maintained, corporates will increasingly be able to centralise cash management and achieve improved visibility of inbound cash, along with easier reconciliation,” explains Marcus Hughes, head of banking at Bottomline Technologies. “This in turn will enable corporates to reduce their days sales outstanding (DSO) with valuable cash flow benefits, greatly enhancing the cash conversion cycle.”

Significantly, the survey reveals that 77% of corporate respondents anticipate a positive impact from SEPA on their cash conversion cycle, while none of the respondents predict a negative impact as a result of SEPA.

Catherine Zago, finance manager at Etiminie in Luxembourg, says, “SEPA guarantees a maximum value time to pay in a more timely manner, especially for VAT payments in Eastern European countries where I have very little time between the preparation of the VAT return and the VAT payment deadline. Similarly, I expect to collect funds more quickly and get fewer cheque payments as a result of SEPA and therefore fewer fees deducted at receipt.”

How do you think SEPA will affect your cash conversion cycle? (Corporate respondents)

Interestingly, 23% of the corporate respondents believe that SEPA will have no impact on their cash conversion cycle. On further investigation, however, 80% of these respondents are large corporates (revenues between US$1-10bn) who have streamlined, centralized structures with reduced bank relationships and therefore already enjoy the benefits that SEPA is set to introduce. Some of these companies operate in the business-to-consumer space and are also well advanced in the use of SEPA-type products such as direct debit.

There is always room for improvement though and SEPA can still provide these centralized organizations with new advantages and opportunities. For example, in his presentation at EuroFinance Florence, Andreas Knopf, head of treasury operations and processes at SAP, said that while the company has a high degree of payment and reconciliation automation in certain European countries, he acknowledges the fact that SEPA will help the company achieve “even higher efficiency rates for the whole of Europe by standardising format, content, messages and behaviour”.

Where Will SEPA Affect Accounts Receivables the Most?

Survey respondents were asked to decide where they believe SEPA will have the most impact on their accounts receivables processing. The results revealed a close distribution between collection cycles (23%), clearing cycles (22%) and fund availability (21%), while one quarter of the corporate respondents said reconciliation would be most affected by SEPA.

“The proper use of standardised routing codes, IBANs and BICS, will not only improve STP but also reconciliation,” says Hughes of Bottomline Technologies. “More remittance information (up to 140 characters) will be able to be transported with payments, again greatly facilitating reconciliation.”

In terms of receivables processing, where do you think SEPA will have the most impact? (One answer only, Corporate respondents)

SEPA offers corporates multiple benefits as a result of the harmonisation of instruments, formats and rules for national and pan-European payments and therefore improved liquidity management. For Kees van de Zilver, treasury manager at Reichhold Finance in The Netherlands, SEPA will have a positive impact on fund availability because it will give the company the opportunity to open bank accounts for its European entities with one bank. He says, “Currently, we need to have bank accounts in each country where we have an entity. When these accounts become centralised with one bank, it will be easier to pool funds and account information will be more easily available. This will have a positive impact on our funds’ availability.”

Wim Lambrecht, corporate treasurer of Multi Corporation based in The Netherlands, agrees and adds: “I believe that SEPA will have an important impact because of the new and enhanced payment instruments that it will introduce and therefore corporates will have better availability of their funds.”

Receivables and SEPA: Reaping the Benefits

The results of the gtnews accounts receivable survey overwhelmingly indicate that corporates believe SEPA will have a positive impact on their receivables processing in Europe. For example, managing euro liquidity and payment operations from a single account (or group of accounts located in one country) will considerably reduce costs as corporates consolidate payment operations.

SEPA will, however, affect corporates in different ways depending on the nature of their business, the number of their clients and suppliers, as well as their organisation and legal structure, according to Nick Claus, senior cash pooling advisor, global treasury and investment management, Transaction Banking, ABN AMRO. “To get the measure of what needs to be done and how they can benefit, companies would be well advised to start a SEPA impact assessment soon,” he says.

Still, although it will require some thought and preparation, getting ready for SEPA need not be a huge burden for corporates. “SEPA does not necessarily require corporates to operate very differently from the way they do already,” explains Sonia Rossetti, head of Europe Refocus, Transaction Banking, ABN AMRO. “You may not have to dismantle existing infrastructures but rather work on creating processes that optimise your current structure to reap the benefits.”

SEPA will be a catalyst for substantial improvements in accounts receivables processing: standardised collections and clearing cycles will enhance DSO predictability, cash held in inventory and accounts receivable will be minimised and, through automated cross-border reconciliation (with the use of a single instrument such as direct debit), banking fees will be reduced and funds availability improved. Corporates must be prepared to take advantage of these opportunities by fully understanding the scope of SEPA and how it will affect their entire organisation.

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