SEPA

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From Challenge to Opportunity: Supporting Current Treasury Needs and Future Aspirations How are market trends in Germany evolving? The author examines this question from a number of perspectives - including Ravensburger’s recent SEPA implementation project.

From Challenge to Opportunity: Supporting Current Treasury Needs and Future Aspirations

by Kees Hoving, Head of Trade Finance and Cash Management Corporates, Germany, Global Transaction Banking, Deutsche Bank AG

When considering the cash and treasury management issues facing corporate treasurers today, it is important to recognise that every company has different needs and priorities. Consequently, a bank has to tailor its solutions to each client’s existing needs and future goals. Across the spectrum of Deutsche Bank’s corporate clients, the experiences and pressures of a €20m midsize domestic company will differ significantly from those of one of the world’s largest companies. There are also differences across industries: a retailer may be most concerned by the move from cash to card receivables, risk management and the expansion of online retailing, while a manufacturer may be focused on export finance, having witnessed a trend from trade instruments to open account and then back again. Smaller companies may be seeking new avenues of liquidity, while larger firms may be interested in supply chain finance to increase the resilience of their supply chains. At Deutsche Bank, we are focused on delivering highly automated, efficient and reliable solutions that meet our clients’ diverse needs, embracing today’s challenges and tomorrow’s opportunities.

Momentum towards SEPA migration

Among our multinational corporate clients in Germany, there are a variety of issues currently consuming the attention of senior treasury professionals. One of the most significant of these is the Single Euro Payments Area (SEPA) which faces growing momentum as we approach the defined end dates for existing domestic schemes. For many companies, SEPA has been an issue that could be left on the ‘to do’ list for the past few years, but it is now becoming a priority. Germany has the advantage of already being a low-cost, highly efficient jurisdiction for payments, so many companies are seeking to centralise payments and collections in Germany to take advantage of these opportunities. For example, a company seeking to use direct debits in Italy can avoid higher interchange fees by transferring this activity to Germany. Consequently, we are seeing that clients are looking at SEPA migration not only as a necessary regulatory requirement, but also as an opportunity to optimise payments and collections, increasing efficiency and reducing costs. As a pioneer in SEPA, with a strong track record of supporting our clients to migrate to new payment and collection instruments, we are seeing a considerable upturn in interest in SEPA migration, and we are encouraging clients to plan and implement projects as soon as possible rather than waiting until the final deadlines when there will be greater pressure on resources.

Quest for working capital optimisation

By implementing efficient payment and collection instruments, with greater transparency and control over processes and cash flows, treasurers are in a better position to manage working capital at a strategic level and accelerate the cash flow cycle. The quest for enhanced working capital and greater control over liquidity has been a long-standing priority for larger companies, but we are now seeing smaller companies seeking to take advantage of techniques such as physical and notional pooling, domestic, regionally and globally. In doing so, their aim is typically to maximise the use of cash across the business, reducing the need for financing to fund working capital and increasing surplus cash available for investment. To achieve the degree of  transparency and control that they are seeking, treasurers need to be able to rely on timely, accurate data that is delivered securely and can be integrated easily into other systems, a particular strength of Deutsche Bank and one of the factors in our clients’ decision to work with us as their primary cash management bank.

A closer look at supplier financing

While cash management is a priority for many companies, trade finance has also become a more significant topic. For example, since the financial crisis various forms of supply chain finance have received significant attention, such as supplier financing where a buyer enables suppliers to gain access to liquidity by discounting confirmed payables from the buyer, financed by the buyer’s bank, while the buyer itself could enjoy longer payment terms.

While cash management is a priority for many companies, trade finance has also become a more significant topic.

There have been several high profile success stories for supplier financing, particularly among the automotive and pharmaceutical industries. However, we are also finding that many suppliers in Germany remain less attracted to such schemes as the financing rate available for supplier financing may in some cases be no more attractive than borrowing locally. Nevertheless such suppliers might join supplier finance programmes for improved working capital management and availability of enhanced treasury forecast information. Overall, we are recognising continually increasing volume on our platform due to the fact that this financing tool has become a stable source of financing which complements other alternatives. For example, in addition to supplier financing, Deutsche Bank is working closely with our clients to determine the most appropriate means of transaction-based financing, both including pre- and post-shipment.

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