Posts Tagged ‘SEPA’
Gianfranco Tabasso, a member of the EC’s experts group on e-invoicing and co-ordinator of CAST, stresses the importance of working capital management improvement programmes and its relationship with e-invoicing, and the automation of the financial supply chain (FSC).
When times are hard liquidity becomes the top priority for companies. Unfortunately, the current crisis in the capital markets and the shaky state of the banking system has made it harder to come by external sources of financing, such as capital and loans, and has increased costs.
With falling sales revenues, senior managers are increasingly looking for ways to free up cash within their companies such as delaying investments, cutting operating expenses and reducing working capital requirements.
Freeing up cash
Working capital management (WCM) is a CFO’s primary responsibility and the major source of internal financing, with corporations on both sides of the Atlantic operating with excess working capital, estimated in the order of €1,000bn.
“Companies that cut CC days improve their ROCE, showing up in the first quartile of C2C ranking in their industry.”
Working capital accounts roughly for 15% of sales and 20% of total capital employed. The appeal of focusing on working capital stretches beyond the balance sheet by positively affecting P&L. Effective management of working capital can also allow a one-off release of cash and ongoing cost benefits. Working capital management is therefore of strategic importance and a key driver for operational and financial performance and market valuations.
Improving the cash conversion cycle (C2C) is a key responsibility of CFOs and cash cycle (CC) days are the key indicators of WCM. There is a relation between good WCM and financial performance. Companies that cut CC days improve their ROCE, showing up in the first quartile of C2C ranking in their industry. For instance, according to Ernst & Young, between 2001 and 2005, 3M company managed to reduce CC days by 26%, and improved ROCE in the same period from 25% to 39%. BT cut C2C from 27 to 11 days and went from a negative ROCE in 2001 to 10% in 2005.
The potential of WC
Ernst & Young estimates that the leading 1,000 European companies have a €420bn ‘excess’ of working capital, or 18% total working capital. By implementing best practices they could see an annual cost reduction of €18bn. For these companies, realising the full working capital cash and cost potential would reduce debt by 33%, increase net profit by 8% and improve ROCE from 13.5% to 15.4%.
The same projection shows that these companies have a WC reduction potential of -47% (inventory -16%, A/R -15 %, A/P +24%). Comparable US companies have a -36% potential, having done some of the work already.
Improvement programmes tackle each component of WC and specialists and well-established methodologies can be used to reduce inventory, re-negotiate terms of trade with clients and suppliers, improve payments and collections, and improve conditions with banks.
Working capital and e-invoicing
You may be convinced of the importance of WCM improvement programmes but what is their relationship with e-invoicing and automation of the financial supply chain (FSC)?
FSC automation and e-invoicing are the most powerful tools to reduce working capital requirements, cut operating costs, increase quality of service, reduce operational risks, and improve relations with suppliers, customers, banks and other parties along the chain.
Unlike other methods for improving WC that usually end in a zero-sum game, dematerialisation, standardisation, and full integration of the links of the chain creates a win-win situation.
Corporate Action for Standards (CAST), an ongoing initiative of the European Association of Corporate Treasurers, estimates that if European companies switched from paper to electronic invoicing they would make annual savings of €243bn. Individual companies could reduce administrative process costs by as much as 80%.
A combination of e-invoicing and ‘reverse factoring’ could also cut financing delays by 37 days and reduce interest rates for suppliers.
Another area that is labour-intensive and prone to errors is automatic reconciliation of A/R with incoming payments. CAST studied a number of cases and found that possible improvements affected each component of the cycle, including sending, receiving, controlling and booking of an invoice, payment, remittance advice, reconciliation and booking of payment.
CAST recommended the use of new XML standards for the invoice, remittance advice and payment, improvements in ERP functionalities and more cooperation between the parties. The result is a higher degree of end to end straight-through processing (E2E STP) which benefits all parties.
Until recently, few CFOs thought of electronic invoicing, standards, the internet and FSC automation as strategic projects that demanded their attention and involvement. It was considered too technical, something to be left entirely to CIOs and IT managers. The evidence gathered by CAST in 2007-2008 shows how the presence of financial departments is still minimal in FSC automation projects.
But times are changing. A survey of German CFOs shows how e-invoicing ranks as the number one area for potential improvements. The study found:
- 76.4% of CFOs prefer an integrated solution for the financial supply chain to optimisation of single components because there is more potential in a harmonised approach
- 52% consider the interlocking of financial processes with customers and suppliers to be fundamental
- Although 25% of the IT budget is allocated to financial processes only 6% are content with their financial processes.
“Standards are primarily set by banks, ICT providers and consultants, all from the ‘sell side’.
Setting standards
To work efficiently and operate at low cost, a ‘network economy’ needs commonly accepted standards. To obtain cooperation, the solution must benefit all participants in the chain, for example it should achieve E2E STP in communication and interfaces with internal procedures, which is possible only by adopting the same standards.
After years of confusion and dispersion, a ‘new world order’ is taking shape, with ISO and UN CEFACT recognised as the international standards in the business domain. Under the aegis of ISO 20022, a new family of XML standards has been developed over the last four years, covering the area of payments, invoicing, financing and securities.
Various standards organisations, covering single industries, are adopting XML and wish to register under the ISO label, which guarantees compatibility and acceptance. While this is fine in principle, there is a problem with the limited involvement of end-users in setting standards. Corporates and CFOs take standards for granted and few companies send their experts to organisations and working groups that evaluate and develop business standards. Standards are primarily set by banks, ICT providers and consultants, all from the ‘sell side’.
Another anomaly with standards is that, despite their importance, there is little or no money supporting their development. Experts have other jobs, their time for standards is limited. There is no money for field research and testing.
SWIFT is a notable exception. It employs experts, has a budget, pays expenses of working group members and has always tried to include corporates in its development process. But often, corporate response has been disappointing.
Therefore, CAST’s other major objective is to familiarise CFOs with the world of standards and commit them to support development work.
Standards organisations need corporate people to define business requirements, evaluate and test finished results. Corporates experts must sit at the same table as banks, ERP providers and standards experts to produce workable solutions. SEPA is the latest unfortunate example of standards decided by banks alone.
Tying it together
E-invoicing is the linchpin of the financial value chain because it starts the payment cycle, records monetary amounts in GL and provides VAT to governments.
Directive 2006/112/EC, amending Directive 2001/115/EC, currently rules VAT and e-invoicing but the EC has published a proposal of amendments and an expert group created by the commission is at work to provide a European e-invoicing framework to overcome barriers and provide incentives for faster growth of e-invoicing, particularly among SMEs.
What are the barriers and the problems of e-invoicing? The primary barrier is legal uncertainty in cross border e-invoicing. The VAT directive left too many options to member states and too much room for interpretation. The result is the existence of national legislations with differences that make it complex and expensive for a multinational and/or its service provider to be compliant in all the countries where it operates.
Today there is little interoperability between operators of different countries, because of competition, cost, complexity, and the risk of ‘loss of control’ when conferring a file to another intermediary who is not the final end-user.
Some of the differences and complexities concern the use of electronic signatures. The directive defines three systems for producing a valid electronic invoice: EDI, advanced electronic signature, and other means to prove authenticity and integrity. Most countries opted for electronic signature. The Nordic countries, the UK and a few others chose EDI and other means.
In the current directive, the concern of the legislator is data protection including proof of origin, authenticity and the integrity of the electronic document, from its creation to its archiving. The proposal changes all of this. Directives must be technology-neutral with no prescriptions but only high principles, a code of practice and best-practice guidelines. The basic principles are:
- equal legal treatment for paper and electronic invoices
- control in internal processes of companies is more important than data protection.
Electronic signature is allowed but no longer prescribed as a method for producing valid e-invoices.
To be approved and adopted by member states by the end of 2012, the new directive must be voted in unanimously by the European Council. National communities are starting to evaluate the proposal and its implications. Smooth sailing through the council is by no means guaranteed.
Source: www.the-financedirector.com
E-invoicing is often linked to SEPA, the Single Euro Payment Area. SEPA should become the area in the European Union where citizens, companies and other economic actors will be able to make and receive payments in euro. This should happen under the same basic conditions, rights and obligations, regardless their location and regardless whether it is a cross border transaction.
The aim of SEPA is to advance European integration with a competitive and innovative euro area retail payments market that can bring with it higher service levels, more efficient products and cheaper alternatives for making payments.
SEPA and e-invoicing are expected to contribute significantly to the Lisbon Agenda, an effort to make Europe the most competitive and dynamic knowledge-based economy in the world by the end of 2010 (based on the assumption that we would not experience the current recession).
The assumed impact of e-invoicing on SEPA
It is commonly agreed that e-invoicing does not only significantly contribute to the Lisbon Agenda, but also to the uptake of SEPA as such! For instance, the final report of the informal task force on European E-invoicing stated that:
”Key stakeholders are eager to use this framework as a basis for service their offerings within the 2008 time frame, particularly to assist in the commercial leverage of the Single Euro Payments Area (SEPA)”
Moreover, the European Expert Group on E-invoicing declared in its mid term report:
”Electronic invoicing could also support the migration to SEPA (Single Euro Payments Area) based on further payments automation.”
The European Commission stated in its proposal for a new VAT directive:
”Also, the Single European Payment Area, which was launched in the beginning of 2008 in order to harmonise electronic payment processes across Europe, and the aim of promoting e-invoicing can be of mutual benefit to each other given the inherent links between invoices and payments.”
Interestingly enough, e-invoicing is not a part of SEPA. It was decided that SEPA should ultimately consist of:
- the single currency: the Euro
- a single set of Euro payment instruments
– credit transfer, direct debit and card payments
- efficient processing infrastructures for euro payments
- common technical standards
- common business practices
- a harmonised legal basis, and
- ongoing development of new customer-oriented services.
Invoicing as value added service
So how should we position e-invoicing against SEPA? The image underneath could shed some light.
(made available by courtesy of AcceptEmail)
High potentials within e-SEPA
This clearly shows that e-invoicing is not part of the core instruments of SEPA. The core instruments are transfer, direct debit and card payments. E-invoicing is positioned as a value added service on top of these core instruments, similar to e-payments and e-mandates.
For that matter we should consider e-invoicing, e-payments and e-mandates as a part of what could be called e-SEPA: The Single Euro Payment Area that deals with electronic instruments. In particular e-mandates could have a profound effect on SEPA; maybe even more than e-invoicing. This is because not every e-invoice will be directly linked to payments within SEPA (A lot of invoices are more closely linked to a supply chain than to payments). Whereas each e-mandate is directly to use of –SEPA- payment instruments.
So maybe we should start to consider e-mandates to have the highest potential in enabling SEPA and start to create a tighter link between those two than that between e-invoicing and SEPA, since e-invoicing has more to do with e-SEPA, not SEPA.
The Dutch banks have composed a standard message for the customer initiation of a European bank transfer. This allows business and IT customers and / or ERP providers to a set up a generic and correct SCT UNIFI / XML message supported by the Dutch banks.
Read the ‘SEPA Credit Transfer XML customer-to-bank Implementation Guidelines for the Netherlands’
The initiating group ‘SEPA Migration NL’ have also come up with the Dutch Implementation Guidelines set to create a ‘level playing field’ for their corporate customers and software vendors active in SEPA.
The Dutch Association of Banks strongly recommends the use of the Dutch bank-customer SCT Implementation Guidelines to banks and their corporate clients.
The use of the Dutch Implementation Guidelines does not exclude the use of Belgian or other Implementation Guidelines. A bank can make additional appointments with its customers.
The new bank-client standards will replace the existing, because they do not meet all the SEPA requirements. Thus, BIC and IBAN cannot be used.
Source: www.sepanl.nl
The European Commission is to create a Payment Systems Market Expert Group (PSMEG). The group will be composed of experts competent in the area of payments. It will aim to gain inputs on payment issues, including fraud prevention, from a range of stakeholders, in particular the payment industry and users. Interested candidates are invited to send an application to the Commission by 6 February 2009.
Internal Market and Services Commissioner Charlie McCreevy said: “It is important to have sound, efficient and secure payment systems in order to ensure a proper functioning of the internal market. With the development of our policies in the area of payments, in particular in the context of the Single Euro Payments Area (SEPA), we have a growing need for regular and high-level stakeholder input at the earliest stage of our policy-making. New and complex areas of activity, such as the prevention of payment fraud or the development of innovative payments, will also mean new needs for specialist expertise.”
The call for applications will be open until 6 February 2009. It is addressed to experts in payments, including fraud prevention, coming in particular from the payment industry and the payment users. A maximum of 50 experts will be selected.
The PSMEG’s tasks will be: to assist the Commission in the preparation of legislative acts or policy initiatives regarding payment systems, including fraud prevention issues related to payment industry and users; to provide insight concerning the practical implementation of that policy; and to exchange views on up-to-date best practices and ensure monitoring of potential issues of concern for the market. The group will meet in Brussels and will be chaired by the Internal Market and Services DG of the European Commission.
Below you can read the publication about the Payment Systems Marrket Expert Group:
Source: European Commission
One of Austria’s leading retail banks, BAWAG, is taking part in a Single Euro Payments Area (SEPA) Direct Debit (DD) pilot, scheme operated by the payments specialist VocaLink.
The bank will benefit from a broad range of services, prior to the launch of SEPA DD payments in November 2009, including a payments capture process which removes the need for unnecessary intervention by directly recording clients’ payments. It is hoped the pilot, introduced in Q1 2009, will assist migration and cut infrastructure and development costs.
A management module that can centralise critical mandate information on behalf of the bank and its clients is a key component of the installation. The pilot is intended to ease the migration towards a SEPA-compliant infrastructure.
Commenting on the pilot, Joseph Laughlin, a member of the management board at BAWAG, said: “The initiative will demonstrate to our corporate customers that the bank is ahead of the market. The value-added services, such as payments capture, validation, mandate management and exceptions management, will make a real impact with our customers.
Source: fstech.co.uk
French banks have suspended the launch of new pan-European payment services due to confusion over tariffs in the latest setback for a key EU project to improve consumer choice and boost growth.
The European Union has plans for a single euro payments system or SEPA to give its 495 million consumers cheap payments of bills and purchases in euros from a single bank account. The move is designed to encourage cross-border competition and spur the creation of jobs and growth, the EU’s executive European Commission has said.
The project requires the bloc’s 8,000 banks to invest billions of euros changing their systems to comply with common SEPA standards on credit transfers, direct debits and payment cards. SEPA-compliant credit transfers were launched in January by banks across the EU but the French Banking Federation (FBF) said on Thursday its members have suspended work pending clarification from European authorities on tariffs, in particular charging for services that banks supply to each other, it said in a statement.
‘As long as these rules are not clarified, the French banks, like many European banks, cannot start the work on the timetable because like all businesses, banks need to know their economic and legal risks,’ the statement said.
Banks across the EU are worrying how the new services would be paid for after last December when the Commission said MasterCard’s interchange fee on its cross-border credit cards and Maestro direct debit cards violated EU competition rules.
The interchange fee is charged to retailers for processing a card payment but retailers have dubbed it a tax on consumers. MasterCard is appealing the decision, a process that will take months but the November 2009 deadline for a full switch to SEPA products in Europe is looming.
The Commission and the European Central Bank has said banks could use an interchange fee on direct debits but only for an ‘interim period’ and if it was justified — a move that banks say has ‘destabilised’ their planned SEPA business models.
Source: www.reuters.com
In the sixth progress report on the Single Euro Payments Area (SEPA), published this week, the Governing Council of the ECB welcomed the evident progress made on this project, but emphasised that work urgently remains to be done to ensure the success of SEPA. The sixth progress report also contains a list of “Ten milestones for SEPA implementation and migration”.
Read the sixth SEPA progress report of the European Central Bank below:
There have been many new developments since the publication of the fifth progress report in July 2007. The successful launch of SEPA in January 2008 was a major achievement. With the introduction of the SEPA Credit Transfer (SCT) on 28 January 2008, the first benefits of SEPA have materialised for banks and, more importantly, for the end-users of payment services. National SEPA implementation and migration plans have been drafted and published. Most automated clearing houses that were processing credit transfers in euro are now able to process SCTs. In January 2008, SEPA was also started for card payments, but more effort is needed in this area if the goals of the SEPA project are to be achieved, for example the emergence of at least one additional European card scheme.
Preparations for the third type of payment instrument, SEPA Direct Debit (SDD), have continued over the past year, resulting in the adoption of the Rulebooks. The launch of the SDD is scheduled for 1 November 2009. Nevertheless, the launch of this important SEPA instrument needs to be accompanied by clarification between the banking sector and the relevant competition authorities with regard to the possible interbank pricing models. This issue needs to be resolved urgently. Finally, considerable progress has been made in the fields of e-payments and mobile payments.
The areas which require most attention now are: a) the timely launch of the SEPA Direct Debit on 1 November 2009; b) the emergence of an additional European card scheme; and c) measures to stimulate migration to SEPA Credit Transfer and SEPA Direct Debit, including the setting of a realistic, but ambitious end-date for national credit transfers and direct debits.
The key messages of this report, which should be followed up by the market to ensure the success of SEPA, are as follows:
1. Banks need to ensure more communication, clear product offerings and the delivery of a consistent customer experience in order to stimulate the uptake of SEPA Credit Transfer by all customers, with public administrations, in particular, becoming early adopters.
2. The remaining obstacles to a timely launch of SEPA Direct Debit should be overcome. To move forward, solutions must be found urgently, e.g. by providing clarity on the launch date, ensuring the continued validity of existing mandates, meeting customer requirements, increasing communication efforts and closing the debate on the multilateral interchange fee.
3. SEPA needs to enable end-to-end straight-through-processing (whereby payments are processed smoothly nd without manual intervention) and to move beyond core and basic products by embracing innovative products and services, such as m-payments, e-payments, e-invoicing, etc.
4. The setting of a realistic, but ambitious end-date for the migration to SCT and SDD is a necessary step in order to reap the benefits of SEPA early.
5. A more ambitious approach needs to be taken towards the SEPA for Cards and supporting market initiatives to create a European card scheme.
6. The European payment industry should ensure that it has adequate influence over the SEPA cards standards, which should preferably be non-proprietary standards – The EPC is to advance the SEPA cards standardisation programme.
7. Security is the basis for trust in SEPA payments, and all stakeholders need to continue and even intensify their efforts.
8. Infrastructures are leading by example, but the remaining restrictions on interoperability should be removed.
9. Good governance of the SEPA project requires changes to the EPC’s mandate and organisation. One short-term step would be to strengthen the EPC’s Secretariat so that it can adequately support the EPC in its many tasks. In the medium to longer term, more substantial changes are needed to improve the EPC’s effectiveness, transparency and accountability.
10. Clarity and certainty with regard to the SEPA tasks: the SEPA implementation and migration milestones provide a list of concrete tasks that the Eurosystem expects to be fulfilled to ensure the success of the SEPA project.
The addressees of the report are not only the banks and future payment institutions, but all relevant stakeholders, such as corporates, public administrations, merchants and consumers.
The report is available in other official Community languages in due course.
Source: European Central Bank
At the start of 2008, the European Commission has set up an Expert Group on the subject of electronic invoicing. The thirty members of the Expert Group should represent all key stakeholders concerning e-Invoicing. The members shall be appointed by the Commission from specialists with competence in the area of e-Invoicing on the basis of applications from industry associations, public sector bodies and individuals representing the interests of all or part of public sector, enterprises and ICT, consumers, financial service providers and standardisation organisations in the field of e-Invoicing.
It is expected that an interim report will be published early 2009, describing the proceedings on the work of the expert group up to now and presenting the aims to achieve in 2009 in areas of legal barriers, business requirements and network and standards.
More information on the subject e-invoicing and related such as the Single Euro Payments Area (SEPA) and the intentions and ambitions on the European scale, please visit the website of the European Commission concerning e-invoicing.
A recent study looking to identify possible benefits for corporate financial service providers in the aftermath of SEPA implementation marks the existence of two separate approaches banks can implement in order to recoup SEPA-related investments and generate additional revenues: electronic invoicing and supply chain financing.
The study points out that SEPA compliance has exerted a high toll on financial institutions, all the more so since SEPA provisions actually cut back on banks’ payment revenues by stipulating that cross-border payment fee levels should match those of domestic transactions fees. As a result, the study claims, banks need to come up with alternate strategies to compensate for lost payment revenues. The answer, the research points out, could lie in the so-called ‘value-added’ services such as cross-border electronic invoicing and supply chain financing.
Electronic invoicing comes with a series of benefits ranging from process savings to lower fraud and credit risks, faster payments and improved cash flow, lower IT costs due to standardised invoicing, payments and account interfaces and higher productivity. As a result, the study points out that e-invoicing could hold the key to a higher degree of corporate profitability within SEPA and pave the way for another profit-generating value-added service, namely supply chain automation. The latter renders banks more aware of their customers’ own financial processes and cash flows, allowing them to extend credit facilities to their corporate customers and build additional revenues.
The research was conducted by IT service provider TietoEnator.
Source: Tietoenator
Corporate finance executives have been asking where’s the benefit of the single European payment area, SEPA? Moti Porath of Fundtech argues that now is the time for those directors to reinvent their financial supply chain. Building on the electronic payment and invoicing services around SEPA standards will capitalise on existing investments and attract new business.
Single Euro Payments Area (SEPA) adoption promised to deliver on the grand visions of European harmonisation and a cashless society. But in reality it has been regulatory compliance that has driven adoption for most banks. Company directors and corporate finance departments have asked ‘what’s in it for us?’ and been met with a wall of silence. It is no surprise that financial institutions have been reluctant to engage with the directive. But the vision of eSEPA, an electronic approach to SEPA, is beginning to attract interest.
Using SEPA rules as a driver, banks can create an electronic financial supply chain that is faster and more cost effective for customers, primarily those within corporate finance. Beyond compliance this is an opportunity to revolutionise the financial supply chain and create a ‘win win’.
This progression is long overdue. In a recent report ‘Is European Regulation the Stepmother of Invention?’ TowerGroup research director Gareth Lodge notes that innovation in payments has been lethargic at best. “Many of the processes today are largely based on what was done yesterday - or rather yesteryear. SEPA gives the opportunity to change not just legacy solutions but legacy thinking. The regulation offers an opportunity for banks to reinvent their operations with an eye toward the future, not the past.” The key element for corporates is the chance to reinvent the financial supply chain. Building services around SEPA standards will capitalise on existing investments and attract new business.
Source: Accountingweb
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