SEPA

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Plus Ça Change... Michael Spiegel reflects on how some of the post-crisis changes in priorities for corporate treasurers were in fact a continuation of trends already apparent before the crisis struck, and cites examples to indicate this. The author focuses particularly on liquidity management, payments, the financial supply chain and the changing banking landscape in regards to banking relationships.

Plus Ça Change...

by Michael Spiegel, Head of Trade Finance and Cash Management Corporates EMEA, Global Transaction Banking, Deutsche Bank

While the events of late-2008 and 2009 certainly led to a change in priorities within many corporate treasuries, many of these developments were in fact a continuation of trends already apparent before the crisis struck. For example, while corporates had been seeking to make better use of internal cash for some time, this became imperative as traditional external sources of liquidity dried up at the height of the crisis. In a similar vein, demand for financial supply chain management solutions was growing strongly throughout 2007 and 2008, yet the benefits that these initiatives bring – in terms of liquidity and counterparty risk management – came into their own as we entered a period of unprecedented economic turbulence and uncertainty.

So although there was without doubt a spike in interest in certain products and services during the crisis, this demand is likely to continue as many more corporates have now seen at first hand the benefits available. And even though the global economy certainly appears to be recovering steadily, uncertainty still remains regarding the possibility that this recovery may be a long drawn out process.

A related trend currently observed is corporates gradually returning to more strategic initiatives that were put on hold when the crisis struck. Indeed, while many of these involved the types of initiatives described above, the return of relative economic and financial stability has once again allowed treasurers to take a more considered view on the long-term direction of their businesses.

Cash management

Of course, liquidity was at the heart of the recent crisis for many corporates as it became a rarer commodity and therefore commanded a higher price. As capital markets became difficult to access and many other forms of financing became prohibitively expensive, the imperative grew to ensure that internal liquidity was managed as efficiently as possible. And achieving this requires both the increased visibility of cash and the necessary structures – such as, for example, cash pooling and concentration across subsidiaries – to make best use of it.

As well as enhancing internal liquidity management, there has also been a renewed focus on improving the cost efficiency of processes such as payments and collections – something that is often dependent on the level of centralisation, standardisation and automation that a treasury is able to achieve. Automating processes can greatly reduce the scope for human error and help to eliminate costly paper flows, while centralisation is likely to reduce  much of the potential for unnecessary duplication and deliver visibility benefits that may help with managing internal liquidity.

Standardisation is another area which has seen significant progress in recent years. XML-based formats that allow the consistent exchange of information are rapidly becoming the norm, while a greater take-up of direct corporate access to the SWIFT network is also assisting in this respect. However, the key development driving standardisation in corporate treasuries – in Europe at least – is the Single Euro Payments Area (SEPA) initiative that is gradually harmonising the European payments landscape.

Since the implementation of the Payment Services Directive (PSD) in November 2009, the SEPA project can no longer be ignored and is finally becoming a reality for many. Through standardising both payments and collections across the Eurozone – and several other countries such as the UK – SEPA has opened up greater opportunities for corporates to rationalise their domestic and cross-border cash management arrangements.

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