Published: May 01, 2011
With the European Commission currently proposing 2013 as the date to move from legacy euro direct debit schemes to SEPA Direct Debit (SDD), corporates across Europe need to plan for the impact of switching off national schemes. While SDD holds much promise, it also brings with it a set of challenges which will call for new business processes and system upgrades. The scheme will also place responsibility for managing mandates with the corporate – a significant change in many countries. Garry Young, Director of Corporate Services and SaaS at Logica, examines the opportunities available to forward-thinking corporates, and how they can find business benefit in SEPA.
When SEPA Direct Debits come into force in 2013, corporates are going to face some big challenges. Some organisations still believe that SEPA won’t have any effect on them at all, especially those operating only in domestic markets. As a result, SDD has barely registered on their radar – and many continue to see the regulation only in terms of the spend required to comply.SDD’s shift of responsibility for managing mandates to corporates represents a major shake-up in many countries and will call for new business processes and technology upgrades. It’s not all bad news though, and opportunities are out there for corporates which approach SDD strategically – such as gaining greater visibility and control of their cash.
To start with, SEPA as a whole can boost the efficiency of a firm’s payments processes. Right now, international firms operating collections across the Eurozone have to work with different direct debit schemes in each country. By moving to SDD for euro collections, they’ll just have one set of requirements to manage, allowing them to standardise process and rationalise infrastructure.
Take, for example, a pharmaceuticals company that supplies outlets and distributors throughout Europe. Pre-SEPA, the firm would have collected payments through various mechanisms and processes, to deal with the individual domestic direct debit schemes in each country. Under SDD, the corporate can rationalise its infrastructure and collect those euro funds via a single, standard process. This will make their collection processes more efficient and, ultimately, save time and money in back-office administration. If implemented within a strategic approach to payments, it will be a step further towards gaining greater visibility and control over cash.
Firms like this can also gain more flexibility and control over their banking relationships as part of a broader payments factory approach – centralising all payments and collections. A payments factory can help the entire supply chain work more efficiently – and improve the risk positions. SDD can help further reduce the number of banks with which corporates work, giving firms a stronger hand when negotiating – for example around fees.[[[PAGE]]]
Not only this, but SDD will also allow corporates to get paid more quickly. Under SDD, the ‘collection’ date is the settlement date whereas with the legacy domestic schemes, settlement can be as much as three days after the due date. What’s more, the enhanced consumer protection offered by SDD is likely to encourage greater acceptance of direct debit among customers.With direct debit, corporates enjoy greater certainty of collection dates. This reduces the need to chase for payments, an opportunity for more automated reconciliations and reduced numbers of costly exceptions.
The scheme also brings with it a new B2B payment option, which has the potential to be game-changing in the longer term. Trading parties can confirm a mandate at the point of signing contracts, guaranteeing payment dates and amounts. This enables firms to more accurately plan and control their cash flow.
In a nutshell, the SDD scheme will help corporates gain greater visibility over cash, boost efficiencies and, in many countries, reduce settlement times. Ultimately, it will make a positive contribution to the bottom line.
Corporates looking to use SEPA Direct Debits should assess solution options against key market criteria. Points to consider include:
Smaller firms, managing relatively few mandates, may find a service-based solution to be most appropriate. Banks are starting to offer enhanced collection management services, which include a range of solutions for SDD – from scanning of paper mandates through to full mandate management and enrichment.
Larger corporates, managing millions of mandates, and taking a strategic approach to payments transformation, may find that an in-house solution – either developed themselves or a third-party product – is more cost efficient and offers more control.
SEPA is coming, and SDDs will replace all domestic schemes over the next few years, that’s for certain. Corporates should start seriously planning for this change now.
SDD may seem like a headache, but by streamlining the collections process, it allows large corporates to enjoy efficiency benefits and in many cases faster settlement. The scheme presents an opportunity to review their approach to collections management, giving corporates more visibility and control over their cash. Those who seize the opportunity now and tactically plan to achieve specific business benefits will not just comply when SDD comes into force, but also reap the benefits of change.
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