Corporate treasuries are looking at how best to rationalise and automate their payment processes in order to achieve greater efficiencies and cut costs in account and payment structures. By Michael Guralnick.
As a result of historical corporate expansion, many companies have account structures that rely on multiple banking relationships, which has led to embedded fragmentation. This is a costly proposition and one that carries increased operational risk. Over the past few years, many companies have started to address the multiple banking infrastructure by seeking a single banking partner across one region.
The introduction of enterprise resource planning (ERP) systems, and other third-party technology platforms such as treasury workstations, has facilitated this change.
Added costs
The historical fragmentation of bank account structures has added layers of cost and inefficiency in an environment of increasing global competitiveness where companies are looking to reduce their allocations of both the human and the financial capital that supports their financial infrastructure.
While technology is an enabler that allows companies to centralise and consolidate account and banking relationships, the new regulations are the catalysts taking this to the next level of evolution.
The trend to seek greater treasury management efficiencies has never been in sharper focus. The Single Euro Payments Area (Sepa) directive has led treasurers to begin thinking of the next stage of development and what additional benefits they can derive from this market opportunity.
Some key benefits of Sepa will be the simplification of account structures within Europe, a reduction in the need for multiple bank providers and a cut in overall cost per transaction.
There may be short-term costs of exploiting new Sepa instruments and to implementing new account structures. Third-party system providers are re-engineering their platforms and launching new versions of their systems that will bring additional short-term costs. However, the long-term efficiencies and cost benefits should outweigh those initial investments as processes for payments in Europe are standardised, enhanced account centralisation evolves and bank relationships are rationalised.
Optimising liquidity
Sepa should also allow companies to take advantage of newly developing liquidity management solutions and prove to be a catalyst for optimising liquidity through simplified account structures, which are not hindered by national boundaries.
Managing the euro within a single liquidity structure, in a single bank and a single jurisdiction should allow corporates to gain additional benefits of reduced interest expense by offsetting debit and credit balances previously held with different banks. By choosing a single European bank, companies will be able to offset those balances, reduce costs and get greater visibility, control and enhanced earnings on their overall balance as a single entity.
Weighing the options
Those firms that have already begun to centralise payment structures and build payment factories will benefit most from the introduction of Sepa. However, as not all companies will want to centralise their payments and account structure fully, they should seek to find a banking partner that can offer a multitude of solutions to meet their unique requirements and that has a broad country footprint to support their treasury needs.
For all corporates there are some fundamentals to consider in preparation for when Sepa is fully operational. These include embedding the collection and use of bank identifier codes and international bank account numbers identifiers in their sell- and buy-side processes, and engaging their technology partners to assess the impact of Sepa on their ERP platforms.
There is also a need for corporates to review and consolidate their treasury and account structures and to select the Sepa payment instruments that will help them realise the efficiencies promised and fully integrate their entire financial supply chain. It is also important that corporates consult with their customers and suppliers throughout the process to ensure that all their systems and processes are connected efficiently, end to end.
Citigroup has a large number of regional and global clients who have already implemented pan-European banking and payment processing solutions, all of which are aimed at exploiting the benefits of process consolidation, centralisation and rationalisation.
We have helped clients establish regional and global liquidity structures with multi-bank target balancing and pooling to realise efficiencies through consolidation. Since Citigroup operates across Europe from a single technology platform, companies can design the solution that best meets today’s corporate goals with the flexibility to evolve over time.
Organisational efficiency
Sepa will help create a more homogenous European transaction services environment to support corporate goals of achieving new cost and organisational efficiencies. By actively engaging with clients and their third-party technology partners, Citigroup is working to design optimal payment infrastructure solutions to meet current and future needs. n
Michael Guralnick is managing director, head of Europe, Middle East and Africa client relationship management: corporate & public sectors, at Citigroup Global Transaction Services.
