SEPA

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SEPA as a Catalyst for Change Salvatore Ferragamo's Group Finance Director discusses how the company has leveraged its SEPA migration project to embark on a transformation project, including the appointment of a global cash management bank and the centralisation of payments through a highly efficient payments factory.

SEPA as a Catalyst for Change

by Federico Focardi, Group Finance Director, Salvatore Ferragamo S.p.A.

 

Salvatore Ferragamo S.p.A. is one of the world’s most prestigious brands with a commitment to quality and integrity that extends throughout every stage of its supply chain, from the sourcing of materials and manufacturing inputs to the point of sale. This same commitment extends to Ferragamo’s internal processes, such as cash and treasury management. In this article, Federico Focardi, Group Finance Director at Ferragamo, discusses how the company has leveraged its SEPA migration project to embark on a transformation project, including the appointment of a global cash management bank and the centralisation of payments through a highly efficient payments factory.

Project background

We have around 32 legal entities that have relationships with suppliers, each of which has historically been responsible for its own payments. We recognised that this approach was leading to some inefficiencies. In particular, it was difficult to standardise processes and controls in each country, given fragmented bank relationships and technology systems. Payment approvals were also cumbersome, and often required senior management time to engage in manually-intensive processes, particularly when multiple banking systems were involved.

Catalyst for change

The introduction of SEPA and the obligation to migrate to the new payment instruments provided the opportunity to address these challenges by centralising payments and implementing efficient, standardised processes. We made the decision to implement a payments factory as a related initiative to our SEPA migration – not only would this enable us to improve efficiency and reduce costs associated with payment processes, but it would also help us to manage liquidity more effectively. The payments factory would operate using a ‘payments on behalf of’ (POBO) model, where a single entity (the mother company) makes payments on behalf of European subsidiaries, supported by the correspondent recording on intercompany accounts. We would also benefit from a reduction in the number of bank accounts required, as we would need only one account per currency, and leverage ISO 20022 formats – which enable the entity on whose behalf a payment is being made to be recorded on a payment and passed through to the beneficiary to assist with reconciliation.

A partner for change

The appointment of a cash management bank that would support both SEPA compliance and our wider payments transformation objectives – initially in the euro area, and ultimately on a global basis – was a key requirement. We approached a variety of banks to assess the resilience of their payments processing, strength of their cash management solutions and the depth of market knowledge. Following a rigorous process, we made the decision to appoint Deutsche Bank. In particular, we were impressed by the quality of Deutsche Bank’s advisory approach to, as well as the Bank’s technical support in areas such as XML ISO 20022 implementation, payment centralisation and SAP integration. Deutsche Bank also had a proven track record of working with comparable corporations on a global basis.

Organisational and technical impact

We have already implemented SAP’s In-House Cash module, which allows us to manage the inflow and outflow of payments, and used as the basis for the payments factory. This module enables us to streamline and automate the external financial flows – as well as the associated intercompany transactions when making payments on behalf of group entities– and is now closely integrated with Deutsche Bank’s web-based electronic banking solution.

Group subsidiaries have responded very positively to the introduction of the payments factory. In the past, not only did local finance teams need to input payments information into SAP, but they also needed to manage – and navigate – local banking relationships and systems. Under the new arrangements, group companies simply need to input or upload payments into SAP, with no further need for them to maintain local systems and bank relationships. As all payments-related information is held in a single system, there is also no need to manage different user security rights and passwords. At the same time, users have complete access to payments-related information, including the ability to drill down into payment details to access a complete set of information in SAP. Critical to the success of the project was the support of all the functions involved, in particular the administration and IT department.

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