Cash & Liquidity Management

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A Pioneering Approach to Optimising Collections The barriers to centralising collections are slowly breaking down, for three key reasons: a more harmonised payment landscape; product innovation to address operational challenges; and the ability of banks to support the set-up of domestic, regional or global collection factories.

A Pioneering Approach to Optimising Collections

A Pioneering Approach to Optimising Collections

by Guillaume Flies, Head of Collections, BNP Paribas Cash Management

Many treasurers have taken great strides in optimising working capital and streamlining financial processes, but centralising collections, which arguably brings the greatest advantages, has proved the most challenging. As the timing of incoming payments, and the payment method used by customers, are beyond a company’s control, it is difficult to streamline collection activities or develop economies of scale, particularly as instruments and formats, together with local regulatory and tax issues, can differ so widely across markets.

The barriers to centralising collections are slowly breaking down, for three key reasons: a more harmonised payment landscape; product innovation to address operational challenges; and the ability of banks such as BNP Paribas to support the set-up of domestic, regional or global collection factories.

A compelling value proposition

While there are potential challenges, the benefits of a centralised collections model can be compelling, and often outweigh those of other centralisation projects (Box 1). This is particularly the case when implementing collections-on-behalf-of (CoBo), where one entity collects customer payments on behalf of other group companies. Channelling incoming flows through a single entity and account allows treasurers to maintain fewer bank accounts, simplify account administration and manage liquidity at a group level. A CoBo approach is also a highly effective mechanism to support structures with one single legal entity but having different business units.

Box 1
 
  Click image to enlarge

A harmonised payment landscape

With SEPA (Single Euro Payments Area) now bedded down, some payment and collection instruments are now consistent across the Eurozone (SEPA Credit Transfers [SCT] and SEPA Direct Debits [SDD]), with no distinction between domestic and cross-border flows. Collection accounts can also be located in of the Eurozone country of a company’s choice. These two factors make centralisation of collections more straight-forward, particularly if companies can encourage customers to use only efficient payment instruments such as SDDs. Using SDDs, whether for consumer or business customers, increases the predictability of incoming flows, which has positive working capital implications.

Solution innovation: Virtual Accounts

The sophistication of solutions to support collections centralisation and CoBo is increasing. In particular, BNP Paribas has invested significantly in tools that make it easy and convenient for customers to pay, and for treasurers and finance managers to identify, reconcile and post incoming payments automatically. In addition to providing a comprehensive CoBo offering, BNP Paribas has developed a comprehensive Virtual Accounts proposition that is now firmly established as part of clients’ collection and reconciliation processes.

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