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Turning Obligation into Opportunity In this article, the author discusses how a revised approach to bank connectivity has the potential to add considerable value to the organisation. As we move towards the ETEBAC migration deadline in September 2011, an increasing number of corporates will be seeking support from their banks. Undertaking this project earlier, before the majority of companies, means that the banks will have more resources available, and will therefore be able to provide greater assistance. More importantly, treasurers and finance managers can use this as a catalyst for cash and treasury management enhancements, delivering strategic and competitive advantage.

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Turning Obligation into Opportunity

by Pierre de Montessus, Global Corporate Banking  SVP, Global Treasury Solutions, EMEA, Bank of America Merrill Lynch

In less than a year’s time, almost every corporation in France will be obliged to migrate from ETEBAC, the protocol used for data exchange between corporations and banks. While some companies have already planned or commenced their migration, many others have not yet established their strategy. While it may appear inconvenient to have to select and implement an alternative connectivity method for bank communication, corporate treasurers and finance managers should consider this as an opportunity to enhance cash and treasury management processes, and improve working capital metrics. For example, centralising cash and treasury management activities, optimising processes and adopting Single Euro Payments Area (SEPA) payment instruments can all deliver significant benefits. However, with a number of projects competing for resources, it can often be difficult for treasurers to gain internal support. Consequently, the need to change connectivity methods can be a catalyst for change and a trigger for delivering greater value to the organisation.

Connectivity choices

With the termination of ETEBAC in September 2011, corporates in France, and French subsidiaries of foreign companies with local cash management needs, have three alternatives for bank connectivity. Domestic, single-banked corporates are likely to move to their bank’s proprietary, web-based electronic banking system. Others will be more attracted to Electronic Banking Internet Communication Standard (EBICS), originally a web-based protocol developed in Germany that has been amended to provide an alternative to ETEBAC. While the German and French versions of EBICS are not yet harmonised, this is likely to happen in the future, and has the advantage that it supports existing file formats used in France, in addition to ISO 20022 messages used for SEPA payments. The third alternative, that is already proving the most attractive for internationally active and/or multi-banked corporates, is SWIFT Corporate Access. At Bank of America Merrill Lynch, we are well-equipped and experienced in helping corporate treasurers and finance managers to determine the right connectivity method for them, to plan migration and to identify and deliver improvements to cash and treasury management processes.

Strategic advantages of SEPA

One such opportunity is the implementation of SEPA payment instruments: SEPA Credit Transfers (SCT) and SEPA Direct Debits (SDD). Both of these instruments offer a proven alternative to existing domestic payment types, with the advantage that the same instruments can be used across the Eurozone, without the cost and complexity associated with cross-border payments. For domestic euro payments too, bank charges are reduced as transaction fees for SEPA payments are lower than their ACH equivalent. Although it is not yet mandatory to implement these instruments, a 2012 migration deadline is widely anticipated.

The need to change connectivity methods can be a catalyst for change and a trigger for delivering greater value to the organisation.

As companies will be obliged to adopt SEPA instruments in due course, it is worth considering doing so at the same time as changing bank connectivity, as opposed to waiting until the last minute when bank resources are strapped. At Bank of America Merrill Lynch, not only do we support SEPA instruments, but we also actively assist to address one of the primary challenges of SEPA migration for corporates, namely to supplement vendor, client and payroll payment instructions with valid IBAN and BIC codes. By adding and validating this information in a structured way, errors are reduced and the database of settlement instructions enhanced.The benefits of implementing SEPA payments extend further than simply cost advantages. By cleansing and enriching the database of standard settlement instructions, payment errors are reduced, enabling the company to increase its payment efficiency to suppliers and employees. As SEPA payments are based on a common XML-based format, interfaces can be standardised across all European payments and collections, reducing the IT burden. Processes and reporting can also be enhanced and harmonised across the Eurozone. Furthermore, with a 140-character information field, cash flow reconciliation and account posting can be automated more effectively.In addition to tactical benefits, SEPA is an opportunity for corporate treasurers and finance managers to optimise their liquidity management strategy. While in the past, companies have been obliged to maintain separate payment and collection accounts in each country, often with complex overlay arrangements to consolidate cash, SEPA enables them to rationalise bank relationships and accounts, thereby reducing costs and administrative overheads, improving controls and enabling processes to be harmonised more easily. Organisations of all sizes are increasingly recognising the advantages of centralising processes into financial shared service centres (SSCs), payment and collection factories and in-house banks. Simplifying cash and liquidity management structures, and creating a harmonised environment across the Eurozone, is an important factor in achieving centralisation objectives and ensuring that these functions operate efficiently. For example, despite the advantages of standardising the approach to collections, this has proved difficult for companies in the past, partly due to the use of disparate local collection methods. By using standard collection instruments, and a single euro collection account, processes, metrics and reporting can be harmonised and enhanced.

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Pierre De Montessus Article by
Pierre De Montessus
Global Treasury Solutions, Senior Vice President & Senior Sales Officer, Bank of America Merrill Lynch

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