Using SWIFT as a Technical Leverage for a Better Corporate Financial Supply Chain
In the past two years, SWIFT has considerably increased its presence and activities for corporate accounts. Many administrative improvements, as well as detailed information facilitate the access to the global network for corporate accounts. For instance, the access models were adjusted (the Standardised Corporate Environment – SCORE) and the access was made easier for small and medium-sized companies thanks to SWIFT Alliance Lite.
There is a licence model tailored to the needs of companies of all sizes and transfer volumes. The fact that SWIFT takes the dialogue with its users seriously is proven by the increasing number of customers that visit the ‘Corporate Forum’ at SWIFT’s annual user conference, Sibos. Visitors are told directly about the developments and challenges in payment transactions that are on the agenda in the months and years to come. These efforts have been rewarded with a considerably higher share of corporate accounts favouring SWIFT solutions.
At present, more than 400 corporate accounts worldwide use SWIFT services for their banking communication. Must this increase in corporates that are joining SWIFT be seen as a trend that is currently seizing the financial sector? Or, rather, has it sprung from the industry’s need to find a solution for payment transaction problems? SWIFT has always been an interesting approach for the latter. However, this option has difficult to access because of technical obstacles or the corporate’s size.
The truth probably lies between these two possibilities. The current financial situation, in the wake of the credit crisis, means that corporates are increasingly trying to optimise their financial flows and are searching for solutions that will allow long-term cost savings in payment transactions.
SWIFTNet is a component in the financial supply chain that secures considerable competitive advantages in the optimisation of financial flows for corporates. As a connecting link between banks and financial accounting departments, it can help improve and secure processes. Internal monitoring bodies demand measures for identifying risks and breaches as well as for complying with laws and regulations and SWIFTNet helps to minimise risks in payment transactions and increase efficiency.
In order to make the most accurate decisions in cash management, financial accounting and sales, treasurers require accurate and timely financial data. SWIFT can help in this regard, as it provides a secure and highly available network that allows high-performance data transfer. Over the years, availability for participants has almost reached 100%.
In contrast to conventional and established transfer channels, account information, etc, is available much earlier. Some banks already transmit SWIFT MT940 files to the recipients shortly after issuing the bank statements. Depending on the bank, this may already be around 8pm on the day of posting. The transfer time is reduced to only a few seconds.
This procedure has some clear advantages for the daily business of corporates. On the one hand, the former active collection management required for their account data is dropped. They will receive their data when the bank makes it available via the network. The active and oft-repeated dial-up into the bank’s system is therefore no longer necessary. Follow-up processes in the enterprise resource planning (ERP) systems can therefore be designed more flexibly. Processing scenarios can be developed in such a way that there are only a few minutes between the reception and the start of the processing in the ERP system. On the other hand, the person in charge of incoming payments receives faulty receipts much earlier for post-processing. Ambiguous transfer orders or cases to be settled can be processed and clarified much faster. Compared with the conventional collection management provided by standard software, four to five hours can be saved per employee every day, which could translate into cost savings of up to €150,000.
Another component for improving the flow of funds is the interpretation and processing of SWIFT MT942 files. SWIFTNet constitutes the basis for the immediate processing of account information in this field. The intervals for making data available depend on the wishes and needs of the customers. The recipient benefits from the automatic delivery, which facilitates an automated sequence of the ensuing processes.
SWIFT MT942 files comprise advised incoming payments by customers – payments initiated by the customer over the day that contain valuable information for follow-up activities. Modern ERP systems such as SAP receive these statements within the framework of the electronic processing of bank statements, interpret the purposes of use or identify receipts and provide them with a temporary dunning block. The advantage for the company is a reduction of unjustified reminders, as the transferred amount is already on the way to the recipient and the expected date of entry is known.
The information obtained via SWIFTNet goes back to the beginning of the order-to-cash chain or can be used profitably at this point. As a rule, the beginning of the process is marked by an order – an interaction – that sets off subsequent activities.
However, if the customer has fallen into arrears, the ordered goods are often not delivered and the order-to-cash process is delayed, as the order made will only be delivered when the payment will have been made. Thanks to the integrated flow of information provided by SWIFT MT942 files, the accounts receivable (A/R) manager is informed of the current developments in the customer accounts.
Automated and immediate information from the SWIFT MT942 statements are also important and necessary for cash managers. This information allows them to control liquidity in a fast and individual manner. Within the daily financial status, this information is included as further planning type and shows the current development of liquidity over the course of the day. In addition, the cash manager can draw conclusions about the payments made. The bank’s acceptance of a payment is often only confirmed by a protocol. However, this does not automatically mean that the transfer has been concluded. This can only be seen from the SWIFT MT942 statement, which reflects the present state of the checking account.
In all cases, the former active collection management is reduced to a controlling mandate, i.e. to check the completeness of account information in the respective ERP system. Manual intervention is hardly required, which leaves enough room for value-adding activities.
Handling payment flows via a payment factory is the trend among globally operating groups. Depending on the size and structure of a company, different ERP systems and the corresponding interfaces are managed. The communication channels to the banks are often structured in such a way that several electronic banking applications are needed for the sending and receiving of data. The corresponding interfaces have to be expanded several times or they become susceptible to failure with increasing operating time and thus hinder a smooth process flow.
Maintaining such an infrastructure may turn into a serious cost factor. Having only one transport channel may reduce the costs, and a central unit allows access to more than 8,300 banks in more than 208 countries. Heterogeneous electronic banking system environments within one group are therefore either reduced or become unnecessary. A centralised infrastructure causes lower operating costs, which is also supported by a flexible licence model from SWIFT. Choosing the suitable communication protocol (e.g. FileAct – Real Time), as well as the compression of the data, reduces costs even further during operation.
Thanks to SWIFT’s IT infrastructure, communication failure or attacks on the network are almost impossible. The high internal and external availability of SWIFTNet ensures that all linked partners can be reached, non-stop, at any time.
The drivers for corporates to use SWIFTNet don’t merely include the technical aspects and possibilities. The investment security and independence it offers also come into play. As a rule, investments of this size are not made without prior intensive feasibility studies and benefit analyses. The purchase of new software is supposed to be future-oriented. On the other hand, choosing a software supplier is subject to certain criteria (e.g. economic aspects, innovative capability, size of the company, etc.). I find that SWIFT is convincing in regards to both of these aspects. SWIFT is a co-operative society and, as a non-profit organisation, it endeavours to promote technical innovations and developments on a cost level that is as low as possible.
As a rule, national committees or associations lay down the procedures for the exchange of data between banks and customers, implementing new regulations and amending existing regulations. However, there remains a certain dependence of the corporate customer on the software supplier. The customers have to be able to rely on the regulations being implemented in a timely manner. Furthermore, they depend on the supplier’s strategy or market orientation. In the worst-case scenario, one would have to ask: “How long will the company be able to assert itself in the market?”
The same is true with message formats. Many companies hope for a certain independence when it comes to format definition. Standard software, which is used for the interaction between banks and businesses, often validates the data according to the rules stipulated by the national associations – which is the correct approach in many cases.
Because of the single euro payments area (SEPA), however, this topic has to be seen in a different light. We now have to deal with a core architecture and bank-specific format definition. In such cases, it is often better to directly settle questions regarding the format in bilateral talks with the respective bank. With the ERP system, the formats can be adjusted, created and then sent directly to the bank.