Cash & Liquidity ManagementCash ManagementSEPA: Are You Ready for the Opportunities?

SEPA: Are You Ready for the Opportunities?

Adoption of SEPA offers a number of immediate opportunities for enterprises, but firms must move now to achieve them as the 1 February 2014 migration date approaches. For corporate treasurers, the primary short-term benefits will be a reduction in the volume of administration required to manage multiple payment types and formats, as well as the standardisation of customer and supplier payment data brought about by the harmonised single euro payments area (SEPA).

Many early adopters have also identified the potential to achieve cost savings through increased productivity, as well as the reduction in direct payment costs attributable due to more payments being ‘domestic’ SEPA transfers or debits across the continent.

Yet despite these important benefits, it could be argued that the true value of SEPA lies not in its immediate benefits but rather the strategic opportunities which will be afforded after SEPA compliance has been attained.

Some of the more strategic benefits that can be realised once SEPA implementations are complete include:

  • An increase in direct debit programmes.
  • Simplification of banking structures.
  • Transforming treasury organisational structures.
  • Centralisation of payments and collections.
  • Evolution to treasury as a business partner.

Increase in Direct Debit Programmes

Among the most significant of these opportunities is the potential scalability of direct debit programmes that SEPA can drive.  On the surface, the potential harmonisation of incoming and outgoing payment formats delivered by SEPA will greatly simplify management of the credit and debit process for treasurers. While this simplification in itself offers obvious benefits, it’s worth noting that the convergence will also make it easier to initiate a direct debit programme.

For many organisations, particularly those with a specific profile of receivables, increasing the use of direct debit will improve the efficiency of open account trade relationships and significantly improve working capital metrics. In addition, it will also increase transparency and certainty of cash forecasting. For these reasons, the opportunity to either initiate or expand direct debit programmes offered by SEPA should be recognised for its potential to increase cash visibility, while potentially costing less to do so.

Simplification of Banking Structures

Most corporate treasurers have already realised that one of the key benefits of adopting SEPA is the reduction of bank accounts. As the requirement for fewer bank accounts equates directly to a reduction in banking costs, the financial benefits of this are easily calculated. The importance of cost reductions should not be discounted, yet perhaps a more important consideration is that the complexity of banking services may also be a candidate for review.

For many organisations, services such as notional cash pooling and netting have been the preferred tools to minimise the movement of funds when managing global cash. Yet, in a post-SEPA environment, demand for these services may be lessened as the ability and cost to physically transfer funds decreases. Going a step further, we can foresee increased demand to implement internal in-house banking (IHB) structures, which would also put pressure on the number of bank accounts and services that the treasury team consumes.

Transforming Treasury Organisational Structures

For many organisations, the structure and locations of the treasury team have been driven by cash mobility (or sometimes, lack thereof) in various geographic regions. In non-EU domiciled organisations, a European treasury centre was often a ‘must’ to ensure cash management was performed properly and in a timely manner.

Whether the treasury operations are in London, Paris, New York or all three locations, less time will be required from the treasury team to administer payments and money transfers across Europe, post-SEPA. This reduced workload can also translate to the redeployment of resources – possibly even to non-EU locations via increased standardisation – or to other areas of the organisation.

For this reason, many believe that SEPA itself may indirectly influence a further decentralisation of treasury resources, as cash managers become more geographically specialised. This type of transformation can only benefit organisations as they look to increase visibility and control of financial information across all regions and operations.

Centralisation of Payments and Collections

In recent months, there has been much discussion in the industry about the various mechanisms that may be used to centralise payments and collections. Often, it is suggested that payments-on-behalf-of and collections-on-behalf-of (POBO/COBO) models can deliver efficiency, flexibility, and timeliness to the payment and collection process.

SEPA will directly influence the popularity of these models. The reason for this is simply that the less complicated the payment processes and resulting administration, the easier it is to internally justify the establishment of payment factories, collection factories, and shared service centers.

On the surface, this may not seem counterintuitive. Yet it is well known by project sponsors that when the project scope decreases, the project becomes more manageable and the likelihood of achieving the overall objectives will increase. Once goals are seen as more realistic, business transformation projects seem to have a greater likelihood of gaining internal approval.  In this respect, treasury – and IT as a supporting unit – will have more opportunities to achieve operational efficiency in corporate payments and collections.

Treasury as a Business Partner

It is well accepted in the corporate community that the direct and indirect benefits that can be derived from SEPA adoption and implementation offer improved productivity and reduced treasury administration.  By increasing team efficiency, a SEPA implementation indirectly frees time and energy for the treasury team to perform higher-value activities such as analysis and information intelligence projects which they often don’t have enough time to carry out.

As a consequence, if the treasurer is able to dedicate more of his or her team’s time to projects that generate strategic value – such as supporting the growth and expansion of the business – treasury can finally be seen as acting as a true internal business partner. Significantly, this transition may also serve to elevate the treasurer’s perceived value within the organisation, a goal that every corporate treasurer would welcome.

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