2013JanFeb GTB Final

GLOBAL TREASURY BRIEFING
Expert Commentary on Global Treasury and Finance

January/February 2013
Time for Action
gtnews Payments Survey shows more than one in three corporates unready for SEPA
According to the latest gtnews Payments Survey, there are still a significant number of European Union (EU) corporates that have yet to begin a migration programme for the single euro payments area (SEPA) ahead of the 1 February 2014 migration deadline, with 37% of the 284 corporate treasury readers questioned in October and November 2012, admitting that they do not yet have SEPA services in place. Other findings from the just released 2013 gtnews Payments Survey include the fact that 93% now use electronic e-payments, against 59% for cheques, and only 7% for the much-hyped mobile payments.
IN THIS ISSUE
3 Another Year of Evolution 5 2013: Whats on the Agenda 8 A Risky Business, But Still Attractive to Investors 11 News Focus 13 News Briefs 17 SEPA Focus 23 Contingency Planning 25 Payments-on-behalf-of (POBO)
Single euro payments area (SEPA)-related payment formats are very slowly gaining ground ahead of the 1 February 2014 end date, with 42% of respondents, versus 34% previously, now using SEPA credit transfers (SCTs) and 20% using SEPA direct debits (SDDs), which was only 14% in the previous gtnews Payments Survey. However, these payment formats are still only being used by a minority of the 284 surveyed corporates, so there is still a lot of work to do to achieve full compliance just one year before the SEPA deadline hits. The mandate management challenge facing many corporates on SDDs is likely to remain a considerable challenge throughout 2013. The most cited reason for embarking upon a SEPA project is naturally enough compliance with 64% of the Mobile payments, corporate treasurer readers despite the hype, are of gtnews selecting this option. Cost saving is the only being used by next most popular choice 7% of corporations. (with more than one choice continued page 2
GLOBAL TREASURY BRIEFING | January/February 2013
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Financial Su pply Ch
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SEPA
Bottom line:
1Become SEPA proof with ING !
Do you want to derive the maximum advantage from SEPA and take an integrated approach to your nancial supply chain management? ING supports businesses migrating to SEPA and advises on ways to optimise cash management. We have the experience and a large European network to help you migrate to SEPA and can offer you an approach that is tailored to your needs. If you want to learn more about becoming SEPA proof, please visit our dedicated SEPA website: www.ingsepa.com
ING Commercial Banking is a marketing name of ING Bank N.V., registered by the Netherlands Authority for the Financial Markets (AFM). Copyright ING Commercial Banking (2012).
From the Editor

Welcome to the first edition of 2013 of Global Treasury Briefing, which will be appearing more regularly from now on. Instead of a quarterly we will be publishing 10 issues during the course of the year, enabling us to cover a wider range of topics than before and keep pace with the rapidly-changing world of corporate treasury and risk management. In addition to carrying the best of recent articles from gtnews, the magazine will be extending its scope by also including features that are appearing for the first time. As we note in this issue, treasurers were playing a steadily more strategic role within the organisation even before the global financial crisis hit and the trend has accelerated since 2008. It has become something of a clich to observe at the start of each new year that it will prove particularly challenging. It is nonetheless true and our lead story focuses on what treasurers can expect over the coming 12 months. High on the agenda for organisations across the European Union will be readying for the advent of the single euro payments area (SEPA) for which the migration end-date is 1 February 2014. As the articles in our SEPA focus emphasise, the clock is ticking and any EU treasurer who has delayed their preparation needs to give it their urgent attention. This issue also offers comprehensive analysis of payments-on-behalf-of (POBO) and contingency planning. I hope that you enjoy this edition of GTB and, as always, we welcome feedback from readers on topics that you would like us to cover over the months ahead. Kind regards, Graham Buck Editor, gtnews and Global Treasury Briefing graham@gtnews.com
GLOBAL TREASURY BRIEFING

+44 20 7436 4306 | enquiries@gtbriefing.com EDITOR IN CHIEF Neil Ainger | neila@gtnews.com EDITOR Graham Buck | grahamb@gtnews.com HEAD OF PRODUCTION AND CLIENT SERVICES Mia Leaning | mial@gtnews.com SALES DIRECTOR Anne-Marie Rice | annemarie@gtnews.com MANAGING DIRECTOR Elizabeth Johns | ejohns@AFPonline.org PUBLICATIONS MANAGER Amy Cooley | acooley@AFPonline.org EDITORIAL ADVISORY BOARD ASIA PACIFIC Craig Bush, Group Treasurer, Worley Parsons Sue Lee, Assistant Treasurer, Danfoss A/S Jason Wang, Regional Treasurer Asia-Pacific LATIN AMERICA Carlos Negrao, Manager Corporate Treasury and Contract Management, BT Global Services MIDDLE EAST Daniele Vecchi, Senior Vice President, Head of Group Treasury, Majid Al Futtaim Group NORTH AMERICA Michael Connolly, Vice President, Treasurer, Tiffany & Co Ruud Roggekamp, Assistant Treasurer Corporate Finance & Banking, The Boeing Company Rey Semonia, Financial Advisor Len Thompson, Cash Manager, Fike Corporation Brad Gilbert, Treasury Manager, Vista Print ADVERTISING Advertise in Global Treasury Briefing - reserve space today, contact: U.K. Amy OBrien | amyb@gtnews.com +44 (0) 207.079.2809 U.S. Tim Eagan | teagan@afponline.org +1 301.961.8827 SUBSCRIPTIONS Global Treasury Briefing will be published 10 times in 2013. Subscriptions are complimentary to readers who register through gtbriefing.com. AFP members may receive a complimentary subscription through afponline.org/newsletters.
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About gtnews gtnews, an AFP company based in London, is a major global knowledge resource for over 60,000 treasury, finance, payments and cash management professionals. Online, gtnews is updated weekly and provides subscribers access to an archive of almost 3,000 global treasury articles in addition to special reports, commentaries, surveys, polls, news, ratings updates and whitepapers. As part of the Association for Financial Professionals global network, gtnews editors encourage experts to share their knowledge on key issues facing treasury and financial professionals including changes in regulations, technology and the pursuit of internal efficiencies.
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January/February 2013 | GLOBAL TREASURY BRIEFING | 1
Payments Survey 2013 continued acceptable) with 60% of respondents selecting this, ahead of 53% seeing benefits in centralising payments and 41% choosing bank relationship reduction. The latter is possible because a single bank can now theoretically handle all SEPA payments across European borders. The latest gtnews Payments Survey confirmed that while cheques are still used by 59% of the 284 corporates questioned, with North American usage ahead of Western European, it is electronic payments (e-payments) which are by far the most common form of regular everyday payment. 93% of respondents said they use them, versus 87% in the previous gtnews survey. The triumph of efficient e-payments and wire transfers has been helped by the improvements and adoption of automated clearing house (ACH) credits and debits in developed countries, with 71% and 50% of corporates respectively saying they now use them (up by 16% and 3% respectively since the previous survey). Mobile payments, despite the hype, are only being used by 7% of corporations. The use of mobile authorisations in the trade finance field or elsewhere, one of the few acknowledged benefits for treasurers of the mobile channel, is still relatively unknown as well only 12% of respondents use them, but 29% indicate that they are planning to do so. Further growth may therefore become evident in this specialised, niche usage of the mobile channel. The 2013 gtnews Payments Survey questioned 284 corporate treasurers in October and November last year and was released in Q1 2013. Key findings of the report include: A high proportion of survey respondents (41%) reported that treasury only employs one or two technology systems to access and use payment information; only 12% report using 10 or more systems. The use of SWIFT services for payment processes is not universal, although they have a small edge (54% report using SWIFT, while 46% do not). Fast-growing, emerging regions, such as Asia-Pacific, central and eastern Europe (CEE) and the Middle East/Africa, are more actively adopting SWIFT. Interestingly, 45% of North American respondents reported using SWIFT versus 36% previously, which suggests a growth curve. One in three of respondents are now using electronic e-invoicing, with a further 36% saying they plan to do so, but a significant 31% of corporates remain unconvinced saying they have no plans to adopt it. The payments-on-behalf-of (POBO) model, which follows a corporate treasurys decision to centralise its procurement functions and often works best with a shared service centre (SSC), is a popular new structure to adopt. Exactly half of the treasurers questioned in the gtnews Payments Survey are either using a POBO (28%) or plan to do so (22%). Western European organisations are the keenest on POBO, with 52% in favour against only 42% in North America who said they are using the structure or plan to. For the full results from the 2013 gtnews Payments Survey please click HERE.
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> TOPIC
Another Year of Evolution

The array of challenges facing corporate treasurers has steadily grown since the financial crisis first broke more than five years ago. Peter Williams looks at what 2013 holds in store and how likely developments will continue to make the treasurers role more strategic. | Peter Williams
An array of challenges face corporate treasurers on a daily basis. And while most risks on their agenda for 2013 have a familiar feel, they can expect plenty of twists and turns to the old favourites as well as a surprise or two to keep them watchful in the year ahead. For treasurers many of issues begin and eventually end with funding. The bank drought is an ongoing tale. Ian Fitzgerald, chief executive officer (CEO) of London-based consultancy Loans Syndication Advisory Services, who describes himself as an ex-insider now an outsider, says the corporate loans market looks pretty gloomy. The volume of issuance in 2012 for syndicated loans to corporate borrowers was just over 400bn (US$540bn) across the Europe, Middle East and Africa (EMEA) region, only slightly above the low of 2009. And the figure for equity was a record low, barely registering on the graph. A lot of companies have completed refinancing and the low volume of M&A was driven by general uncertainty across the board, says Fitzgerald. Corporates are continuing to deleverage or get cash out of the bond market because of quantitative easing. EMEA bond issuance for non-financial corporates was relatively healthy at just over 400bn, equalling the good year of 2009. Fitzgerald describes the current situation as a bit of a phoney war, with banks relatively flush thanks to central bank intervention. He adds: The syndicated loan market has always grown when there is relative economic confidence and companies are able to go to the market for investment or M&A financing. Gary Slawther, corporate treasurer with Octal Petrochemicals in Oman, echoes the gloomy prognosis. The view I am getting and it is not just in this region is that banks just arent lending money, he reports. There are the local banks and that is it; the international ones just arent interested. However Fitzgerald suggests the gloom may be lifting and that treasurers who do want to secure funding look set to be in a good position in 2013. Banks are flush with funds thanks to the European Investment Banks (EIB) intervention and quantitative easing (QE) so the competition is particularly stiff for corporate mandates, especially syndicated loans. He believes that it is a good time to borrow, which means you are not going to get money for nothing but treasurers can push the envelope a bit.
A Early Boost
The EIB certainly put down a strong marker for 2013 when it announced on 8 January that its shareholders, the 27 European Union (EU) member states, had unanimously approved a 10bn fully paid-in capital increase. It said the funding would allow it to provide up to 60bn, over a three-year period, in additional lending for [in its words] economically viable projects across the EU. While the EIB is expanding its balance sheets other banks are heading in the opposite direction with deleveraging still firmly on their agenda. European banks are expected to trade some 60bn in non-core loans in 2013, as they step up actions to shrink. That figure compares to 45bn from such deals in 2012 and 36bn in 2011.
...a large amount of loan portfolio transactions have involved real estate backing. This year the focus is set to be on corporate and leveraged lending together with a longer maturity profile.
The prediction for 2013 comes from accountancy giant PwC which says that, to date, a large amount of loan portfolio transactions have involved real estate backing. This year the focus is set to be on corporate and leveraged lending together with a longer maturity profile. But, says PwC, the banks have some way to go at their current rate of disposal as the firm estimates that unwanted loan portfolios total more than 2.5 trillion across Europe. Richard Thompson, who heads PwCs European portfolio advisory group, says: In 2012 we saw a large number of different
Peter Williams, FCA, is a UK-based Chartered Accountant and financial journalist. He has edited, and written, for leading titles in the treasury, finance and accountancy sector over the years, including The Treasurer, Accountancy Age and Financial Director. He also spends time working with banks and companies on their financial communication projects.
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banks bringing their portfolios to market, trying to capitalise on firstmover advantage and recognising that basic laws of supply and demand mean that the higher the deal volumes in future, the lower the price. This issue of price will clearly remain a key challenge in future for sellers in countries that are already developing as more mature markets.
In terms of the practical steps which treasurers can take he says: Treasurers are focusing on alternative sources of financing to increase the diversification of their funding sources and reduce re-finance risk.
We are also seeing greater transparency among many banks as to the scale of their non- core portfolios. We believe there will be an active market for at least the next five years, and probably a lot longer. So one more probably for treasurers to deal with. Steve Dwyre, managing director, industrials, Lloyds Bank notes that treasurers are still concerned about a range of unknowns, including global political uncertainty. In terms of the practical steps which treasurers can take he says: Treasurers are focusing on alternative sources of financing to increase the diversification of their funding sources and reduce re-finance risk. Dwyre points to the US private placement (PP) market, which is attracting interest from the lower end of the corporate market (businesses with annual turnover of 1bn-5bn), which traditionally have not had a rating or tapped the bond market. Last year the US PP market topped $50bn compared with $45.1bn in 2011 and 60% of those tapping it
were non-US companies, including 20% from the UK, the Netherlands (8%) and France (6%). Perhaps the stand out borrower in 2012 was German software company SAP, which raised $750m. Dwyre also suggests that in the UK the retail bond market will continue to attract attention in 2013. Colin Tyler, CEO of UK treasurer body the Association of Corporate Treasurers (ACT) agrees that a process of transition will continue away from bank debt towards the public bond and the private placement market, driven by the changing business model of banks. The key, says Tyler, is that corporates want to retain stronger control over their funding.
area. He points to the paper the ACT published with think-tank the Centre for the Study of Financial Innovation (CSFI) in 2012, Seeds of change, which looked at emerging sources of non-bank funding for small to medium-sized enterprises (SMEs). Slawther suggests that one strategic risk in the supply chain, to which treasurers need to pay attention to ensure their companies are not badly hurt, is commodities. He says: A lot of money, investment and liquidity is going into commodities, including food. In some commodities this will represent a big geo-political shift and will cause spikes in demand and in prices. You could be forgiven for thinking that the old maxim cash is king has lost some of its lustre when so many corporates are holding so much cash: no one wants to spend and no one wants to invest in anything that appears remotely risky - even if yields remain pancake-flat. The only real development on this is the wry comment that Google is an asset management business with a search engine attached. The same could be said for any number of technology companies. So more corporates may decide to do what UK packaging company Rexam announced at the start of 2013 and decide to hand cash back to investors - 395m in total following the sale of its personal care business on the final day of 2012. Tyler comments: Treasurers are carrying more cash than they have in the past because they cant rely on tapping money as and when they want it. Structurally it is a different place than five years ago. You worry about the little return you are going to get from the cash in hand - but part of the treasurers role is not to lose the money and see that it is available to the business as and when they need it to apply to growth plans. Continue reading the rest of this article at www.gtnews
Other options
As well as looking to public markets, Dwyre suggests that a third option companies are examining is receivables finance and commercial finance, or even securitisation if a more formal programme is put in place. We are seeing treasurers look to the working capital part of the balance sheet and monetising that in an off-balance sheet way. This type of initiative is being considered by household names, bigger companies than those that normally look at factoring. Tyler predicts that treasurers interest in supply chain finance (SCF) will continue. But he suggests the focus may move away from regarding SCF as a source of finance, and instead more attention will be paid to looking at how dependent businesses are on strategic suppliers and how help can be provided to those key suppliers who are struggling to find funding. He says the eurozone crisis forced treasurers to dust off their contingency plans helped by a planning note issued by the ACT and that prompted a more general look at how they manage issues such as funding. He expects the hunt for diversity in funding to continue and anticipates more innovation emerging in this
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> VOX POP
2013: Whats on the Agenda?

Corporate treasurers face another challenging year in 2013, as the long-awaited global economic recovery remains elusive. We put six questions to members of gtnews editorial advisory board (EAB) on what they expect in the year ahead, the developments they would like to see and also those that could cause sleepless nights.
Ellen Cornellisen,
Director Treasury Europe Aleris, Switzerland From my perspective 2013 will be largely focused on improving cash forecasting - it never can be good enough, moving forecasting to an automated platform, consolidating our activities in China and setting up a treasury function there. And, ideally, moving cash management banks! In response to the questions:
1. Will the economic environment improve in the year ahead and do you expect the demands of your job to increase, stay unchanged or diminish in 2013? 2. What event(s) of 2012 had the greatest impact on your organisation and your own dayto-day activities? 3. Which three areas of risk are of the greatest concern to you? Have these changed since the financial crisis began? 4. Have any recent or upcoming tax, legal or regulatory changes moved on to your agenda? If yes, what are they? 5. What development would be most helpful in making your job easier and is there a realistic chance of it occurring? 6. Similarly, are there any potential developments in 2013 or longerterm that could create headaches for you and your team?
I cant see any big improvement. Workwise, I know the job requirements will increase - especially with our project in China.
Discussion on the eurozone and a potential Greece exit. I had to set up a contingency plan to cover areas that could be impacted. This took quite a while; however the outcome gave reassurance, especially on our client base.
Counterparty risk at banks; counterparty risk customers due to changes in payment behaviour; market fluctuations.
None that Im aware of.
Moving banks and going, hopefully, to a better provider.
China - these challenges principally being getting cash into and out of the country, adhering to changing regulations, and working with counterparties who change their minds often.
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Len Thompson
Cash Manager Fike Corporation, US
I believe that the economic environment will improve slightly in North America, with a small growth in gross domestic product (GDP), but expect Europe to be flat or down slightly in 2013. The job demands will continue to be rigorous, as treasury becomes ever more involved in company strategy and planning. Resolution of the presidential election will, hopefully, provide stability to the US economy. However, the fiscal cliff mess has still not been addressed. We completed a project to streamline processing of electronic payments to vendors - this eliminates many of the manual steps previously necessary to initiate an automated clearing house (ACH) payment.
Bruce Lethuillie
Group Treasurer, Corporate Kongsberg Automotive, Norway
Internationally, the economic environment should improve but we still see Europe struggling. Job-wise, improved global visibility should hopefully give us time to plan more strategically; global cash management request for proposals (RFP); and review of financial risks.
Edwin Bolton
Manager Mergers and Acquisitions and Commercial Finance Shell, UK
I expect the economy to move sideways this year. Worries over Chinas slowdown, a potential euro meltdown and the long-term impact of US monetary and fiscal policy all mean increased pressure for treasurers, with increased focus on cash and debt management.
1.
2.
Definitely the bank crisis and aftermath. The impact was a strong pressure on resources and creativity to overcome the banks challenges. Eventually, we managed to sign a five-year revolving facility for a non-investment grade company.
For the oil and gas industry you cant overestimate the impact of the US shale gas revolution, and its risks and opportunities.
3.
In order, foreign exchange (FX) risk management, interest rate risk management and counterparty risk management. The financial crisis has definitely changed how we perceive counterparty risk. With banks on both sides of the Atlantic stressed, credit and deposit relationships get much more attention from senior management.
Counterparty risk; funding and liquidity risk, foreign currency risk. Awareness of our funding and associated liquidity risk has improved within the organisation; the two other risks have not materially changed in five years. Indeed, there is less volatility in FX markets now than was the case five or 10 years ago.
Loads to choose from, including: Oil price uncertainty; this has always been volatile but we see significant disconnect between localised gas markets and international oil pricing. Although there is expectation that these will converge as new infrastructure is built, the timing and convergence point is unknown and challenges investment planning. Investment opportunities; in the current climate its very hard to find any that are inflation -beating. Free trade; increasingly currencies are being manipulated and trade restrictions, such as quotas and tariffs, are implemented to protect national interests, albeit at the expense of an efficient global market place. This will put the brakes on the global economy.
4.
Foreign Bank Accounting Reporting (FBAR) regulations in the US continue to be a problem. As a small to medium-sized enterprise (SME) it poses a significant challenge, as we must dedicate significant resources to ensure compliance.
Located in Norway, we are less impacted by European regulations. Still, we will be working with our bank to be single euro payments area (SEPA)-compliant.
5.
Speaking for my organisation, a sort of treasury workstation or softwareas-a-service (SaaS) solution would be helpful. However, management support of such an investment is tepid at best.
Increased awareness around treasury aspects in the organisation is a goal. Still, it will always be a challenge to become a part of the core business issues.
6.
We are still waiting for final implementation of the Dodd-Frank regulatory reforms. Any impact to our ability to mitigate FX risk (see item 3) would be a problem.
International financial reporting standards (IFRS) for hedging instruments. 4, 5 and 6 dont really apply in my M&A role.
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Rey Sermonia
Financial Advisor US
I strongly believe that the economic environment will improve. Im optimistic because of the concerted efforts by government leaders in the US, Europe and Asia to solve the global economic woes. In addition, US fiscal policy issues will be resolved soon. Regarding the demands of the job, I believe that they will increase - as they have always. 2012 was much the same as the previous year in terms of economic events; 2013 however promises to be more exciting.
Brad Gilbert
Senior Treasury Manager The Endurance International Group, US
I expect the demands to intensify, with increased exposure on compliance and controls in conjunction with a more strategic place for treasury responsibilities within the organisation. This will be a busy year!
US-based Corporate Treasurer
The economic environment will improve, while the demands of the job will increase.
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2.
Rather than any one event, a combination of initiatives to automate processes and integrate acquisitions quickly led to increased pressure on a day-to-day basis. Safe places and investments for excess cash; also appropriate and adequate policies and process for dealing with all aspects of treasury operations (especially PCI issues).
The low level of interest rates and the effect on pension obligation valuation, together with the low credit quality of some European banks due to the eurozone crisis. Bank credit risk (for our deposits); the increased turnover of bankers.
3.
Just like the previous couple of years, the following risks are of greatest concern: credit, currency and regulatory risks.
None that I know of.
N/A.
4.
Do we continue to invest in money market funds (MMFs), in light of the potential new accounting rules and Dodd-Franks impact on derivative/ hedging activity?
5.
The ideal scenario would be if I can automate all treasury processes. Due to various constraints, this is unrealistic in the short term but a possibility longer-term.
I speak for many treasury practitioners in saying a fully functional eBAM (Electronic Bank Account Maintenance) service. The amount of time it takes to execute paperwork, change signers and other transactions would drastically reduce with a regulated and wellcontrolled electronic/software solution. Specifically in my area, it would be extremely beneficial if PayPal was more suited to help corporate clients. As it is more of an individual catered payment method, its popularity with consumers to facilitate payment is increasing quickly. Business-to-consumer (B2C) clients need to offer PayPal as a payment method to be competitive in their space and provide consumers a method of payment that they want. The problem is that the regulations around how accounts are set-up and the access to funds are frustrating for businesses.
Less regulation, although that seems unlikely.
If the fiscal policy issues are not resolved it could create headaches. Also, the constantly changing global regulatory environment could lead to problems.
Increased banking regulations, including Dodd-Frank and Basel III, will increase pricing and decrease banker appetite for some of our credit-related business.
6.
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> INSURANCE
In this first column on the insurance and reinsurance sector, Global Treasury Briefing looks at how the industry coped with hurricane Sandy and other recent natural catastrophes
A Risky Business, But Still Attractive to Investors

Is the level of risk that attaches to investing in the insurance and reinsurance industry commensurate with the potential rewards? Companies operating in both sectors have suffered some substantial financial hits in recent years. As 2013 got underway, many were still assessing their multimillion dollar losses resulting from hurricane Sandy, which blasted the Caribbean and northeastern US in late October. Total economic losses from Sandy have been estimated at US$65bn, but the industrys loss is expected to be considerably lower in a range varying between US$10bn and US$28bn. Businesses that were affected are reported to have paid between 15% to 35% more than a year ago to renew their property insurance cover at the start of January, whereas those that escaped losses paid the same or slightly less than in January 2012. Despite the damage caused by Sandy, the industrys losses for 2012 are estimated to be in line with other normal years of recent times at around US$58bn. The previous year, 2011, was marked by a series of expensive natural catastrophes (nat cats) that could easily deter the faint-hearted investor. They included the Tohoku earthquake and tsunami in Japan, extensive floods in Thailand, earthquakes in New Zealand and a severe storm season across the US. According to reinsurance industry giant Swiss Re, total economic losses globally from nat cats in 2011 were a record US$360bn, while insured losses exceeded US$110bn. This was the second-highest figure ever recorded; the record having been established in 2005, when hurricanes Katrina, Rita and Wilma caused widespread damage). A total of 15 such events during 2011 cost the re/insurance industry upwards of US$1bn per event. The forces unleashed by nature in recent years, particularly the Japan earthquake and tsunami of 2011 followed by the floods in Thailand later that year have caused multinational corporations with extended supply chains and their treasury departments to reassess their exposures. from business interruption than from property damage. The flooded area of Thailand was roughly the size of Denmark and contained seven major industrial centres, each equivalent in size to Birmingham, the most populated UK city outside of London. These are home to the worlds leading producers of computer hard drives and major auto parts. Claims management group Crawford reports that losses in Japan and Thailand have intensified insurers and reinsurers concerns over the relatively dense concentration of manufacturing plants in other regions of Asia-Pacific. A combination of rising sea levels, increasing rainfall and fiercer storms, together with bigger populations and more infrastructure is seen as multiplying the risk. The group has warned the industry that it can expect another major flood in the near term, with the coastal plains of southern China identified as one of the areas most vulnerable.
Many in the industry were surprised at the aggregation of losses in 2011, especially since we didnt have a major U.S. hurricane,
Insurer Allianz Global Corporate & Specialty reported that the magnitude of the Thai flood losses prompted insurance companies to work more closely with corporate clients to analyse their risk exposures both regionally and globally. The event had a major impact on the global economy because of Thailands role as a major supplier of components and parts for the automobiles, computers and electronic industries worldwide. Their supply chains suffered severe disruption, so losses resulted more
Future shocks
A recent report issued by risk modelling group AIR Worldwide suggested that insurers and reinsurers should in future be prepared to face losses of a similar magnitude to those of 2011 every 15 years. The US$110bn-plus bill from global nat cats that year represented a 6.7% exceedance probability, according to AIR, which means a near 7% chance of seeing a similar level of losses recur in a single year according to the groups global industry exceedance probability (EP) curve.
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Many in the industry were surprised at the aggregation of losses in 2011, especially since we didnt have a major U.S. hurricane, said Bill Churney, senior vice president of AIR Worldwide. However, AIRs models incorporate years with losses much greater than what we experienced in 2011. This is the real value of having a credible catastrophe model - to fully anticipate possible outcomes, including future catastrophes and future years that will produce losses exceeding any historical amounts. AIRs report, titled Taking a Comprehensive View of Catastrophe Risk Worldwide, notes that although the insured losses of 2011 were undoubtedly heavy the events did not result in the insolvency of any individual insurers or reinsurers. This it attributes to two main factors; firstly an improved approach to catastrophe
risk management aided by the use of catastrophe models and secondly by the strong capitalisation of insurers and reinsurers. The latter is helped in no small amount by convergence sources of reinsurance capacity in the catastrophe (cat) bond, insurancelinked securities (ILS) and collateralised reinsurance markets. As the report confirms, the cat bond and collateralised reinsurance markets have a role to play in making capital available for high return period events, which is where these instruments are often deployed to greatest effect. Indeed, the heavy nat cat losses of both 2005 and 2011 have provided these markets with a major impetus, rather than putting a brake on their development. The state of the ILS market is regularly monitored by the major insurance broking and risk management groups
including Aon, whose Aon Benfield Securities investment banking division is a provider of ILS products that include cat bonds and collateralised reinsurance, as well as contingent capital vehicles dubbed sidecars, industry loss warranties (ILWs) and derivative products. The groups latest report shows that 2012 was a strong year for new cat bond issues, with seven issued in Q4 for a total of US$1.89bn lifting the figure for the year to US$6.25bn; a 35% increase on the previous year and the highest ILS issuance volume since 2007. Aon Benfield Securities is also bullish on the markets prospects for 2013, with a solid pipeline for the first half of the year again driven primarily by US risks although Mexico, Europe and mortality risk issues have also made a strong showing.
Despite the damage caused by Sandy, the industrys losses for 2012 are estimated to be in line with other normal years of recent times at around US$58bn. The previous year, 2011, was marked by a series of expensive natural catastrophes that could easily deter the faint-hearted investor.
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1 Februa
ry 2014
e o start th t e im t s It now! migration
Corporate Banking
Because SEPA is more efficient with Commerzbank!

Profit from comprehensive advice and make the most of all opportunities From 1 February 2014, you will have to process your payments according to SEPA regulations. Which makes now the perfect time to benefit from Commerzbanks expertise in providing SEPA solutions and our wide practical experience from successful implementation projects. Working with us will allow you to secure maximum benefits. Because with our individually tailored SEPA+ package, we help you optimize your Cash & Treasury Management processes and structures far beyond the borders of SEPA. If you have to implement SEPA, it pays to do it properly. Speak to your Commerzbank relationship manager or our specialists today. www.commerzbank.com/sepa
News Focus
gtnews regularly takes an in-depth look at an important news story to investigate the possible consequences for corporate treasurers. Going behind the headlines the gtnews News Focus analysis articles look at the implications of important trends, technologies, regulations or other developments impacting the treasury sector, explaining the significance of the headlines and potential issues to ponder for our treasury readers.
EU Parliament Tightens Rules for CRAs and Gives Green Light to Robin Hood Tax
Credit ratings agencies (CRAs) face increased transparency standards on how they assess a countrys sovereign ratings, under changes approved on 16 January by the European Parliament. Its members voted 579 in favour and only 58 against. In a clear attempt to limit the damage that CRA sovereign risk announcements have inflicted on struggling eurozone countries in recent years, agencies will only be allowed up to three such pronouncements per year. Corporations will also gain the ability to sue them. EU internal markets commissioner Michel Barnier said that the changes will considerably improve the quality of ratings, by forcing agencies such as Standard & Poors (S&P), Moodys and Fitch to be more transparent in their deliberations and with the ultimate sanction of legal proceedings if fault is found with their work. Under the new rules, CRAs will be allowed to issue unsolicited sovereign debt ratings between two and three times a year but only on pre-agreed set dates. Furthermore, ratings can only be published after markets in the EU have closed and at least one hour before they reopen. In addition, private investors will be able to sue them for negligence and CRAs shareholdings in rated firms will be capped to reduce potential conflicts of interest. Members of the European Parliament (MEPs) also voted for ratings to be made clearer by requiring CRAs to explain the key factors underlying them. Ratings must not seek to influence state policies, and agencies themselves must not advocate any policy changes, adds the text. The rules have already been provisionally agreed with the European Council (EC). a civil liability regime. This matters because ratings have a direct impact on the financial markets and the wider economy and thus on the prosperity of European citizens. Although dissenting MEPs were in the minority, Godfrey Bloom, UK Independence party MEP and a former independent financial adviser (IFA) has been vocal in the defence of CRAs. He said last year that they had been honest with the markets over the worthless government debt of eurozone members such as Greece, Ireland and Portugal. He has expressed fears that they will become overburdened with regulation, citing the fact that CRAs will be required to gain approval for their methodologies from the European Sales and Marketing Association (ESMA) regulator if rating government debt.
The new rules will contribute to increased competition in the rating industry dominated by a few market players. Furthermore,the new rules will reduce the over-reliance on ratings by financial market participants, eradicate conflicts of interest and establish a civil liability regime.
Bloom commented: I believe that this regulation [will] castrate the CRAs, and turn them into government eunuchs to vainly protect the chastity of the euro, a currency born out of wedlock and without a dowry. I fear we will find ourselves exactly back in the position where we started. However, more typical was the attitude of German MEP Wolf Klinz, who said that the new rules were unlikely to change the agencies behaviour. They have for a long time after the global financial crisis maintained that they had nothing to do with it. Rather than considering themselves to be primarily a service provider they were only interested in growing their business as quickly as possible, he added.
Liability Regime Established

According to Barnier: The new rules will contribute to increased competition in the rating industry dominated by a few market players. Furthermore, the new rules will reduce the over-reliance on ratings by financial market participants, eradicate conflicts of interest and establish
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> NEWS FOCUS CONTINUED
Group of 11 Push Ahead with Financial Transactions Tax

A group of 11 European Union (EU) countries gave the go-ahead on 22 January to proceed with the introduction of a financial transactions tax (FTT), despite the opposition of other EU members including the UK. The countries backing the Tobin-style FTT - also dubbed the Robin Hood tax in Europe - are Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain. The Netherlands might also lend its support, despite the FTT being opposed by its central bank, De Nederlandsche Bank (DNB). The European Commission (EC) originally aimed for all 27 EU member states to adopt the FTT, but the plan was blocked by the UK on fears over its impact on the City of London trading hub, Europes biggest financial centre, while several other countries were concerned that it would lead investors to switch trades to the US or Asia. Trading in London will still be affected, as the levy can be imposed regardless of where a transaction takes place if either the buyer or seller is based in one of the 11 countries imposing the tax. The FTT dates back to June 2010, when G20 leaders failed to agree on the imposition of Tobin-style taxes on financial transactions and the European Commission (EC) decided to go it alone, with taxes on the EUs financial sector to generate revenue. It was officially presented on 28 September 2011 by EC president Jose Barroso, who said that the new tax was to make the financial sector pay its fair share following the public sector bail-outs that it had received since the financial crisis began in 2007-08. Supporters of the FTT, who include German finance minister Wolfgang Schaeuble, argue that it can tackle activity deemed as speculative, such as high-frequency trading (HFT), by imposing a charge on every split-second, computer-driven deal.
It is disappointing that Eurozone economies are pursuing the FTT, whose costs ultimately fall on consumers and businesses, and will be a drag on the eurozone recovery. This tax must not impinge on non-participating member states by including extra-territorial reach into financial services activity conducted in the UK. As the UKs largest single trading partner, a healthy European economy is in everyones interests so we urge participating member states to reconsider this tax.
Tax Implications
Taxand, the specialist tax advisory firm to multinational corporations (MNCs) warned that the FTT spelled uncertainty for major companies. While supporters of the FTT will see the recent approval from 11 EU countries as a major coup, MNCs - specifically those in the financial services arena - will view these developments with concern, not only due to the lack of clarity on implementation, but also because of the potential for a distinctly unlevel playing field for trading across the continent, said its chairman, Frdric Donnedieu de Vabres. As things stand there is a striking lack of guidance on both the rate and scope of the new levy, leaving the financial sector in the dark as to how they might structure their equity, bond and derivative trading operations going forward. The implementation of the tax will also result in a trading dichotomy across Europe. As things stand, financial hubs such as Frankfurt, Paris and Madrid will be affected by the tax, with other centres of trading, including London, seemingly gaining a significant advantage through their resilience in not signing up to the agreement. What is clear is that implementation, in whatever form it finally takes, could have serious consequences for the overall competitiveness of Europe as a global hub for financial services. The lack of consistency in the taxation of trading could lead MNCs to avoid the continent altogether, instead looking to the US or Asia. However, charity War on Want, which first launched a campaign for a Tobin-style tax in 1998 in the wake of the East Asian financial crisis, welcomed the decision as a major victory in the battle for a more equitable banking system. It estimates that the FTT will raise an estimated 37bn annually when it is introduced in 2014. [The decision] marks a significant milestone in the long battle to secure a financial transaction tax in Europe, said War on Wants executive director, John Hilary. Not only will the tax raise considerable sums of money for use in the fight against poverty, but it will also provide a mechanism to stabilise the trading system in future. At last the banks can start to repay some of their debt to European society.
Market Reactions
Not surprisingly, the decision to press ahead with the FTT was criticised by UK trade body the Confederation of British Industry (CBI). The UK government is right to reject a Financial Transaction Tax as damaging for jobs and growth, said Matthew Fell, CBI director for competitive markets.
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British PM Cameron Promotes US-EU Free Trade Deal at Davos
UK prime minister David Cameron promoted the cause of a free trade agreement between the US and Europe in a speech on 24 January at the World Economic Forum (WEF) in Davos, Switzerland. He said that the issue would be a priority, along with tax and transparency, when Britain takes on leadership of the G8 later this year for the first time since 2005. In his speech, which came a day after he pledged that an in-out referendum on the UKs continued membership of the EU would be held by the end of 2017 if his party retains power after the next election, Cameron stated that negotiations on a possible US-EU treaty should be pursued. The EU and the US together, we actually make up a third of all global trade. A deal between us could add over 50bn to the EU economy alone, Cameron said. The cause of free trade would receive a massive boost from sweeping away bureaucracy and he wanted to use the G8 to promote a serious debate on corporate tax evasion and tax avoidance after years of abuse. He told delegates at Davos: Europe is being outcompeted, out-invested, out-innovated. And it is time to make the EU an engine for growth, not a source of cost for business. We need more free trade. We need fairer tax systems. We need more transparency on how governments and companies operate. When trade isnt free we all suffer. In a thinly-veiled reference to the Starbucks chain, which has received much opprobrium in the UK following revelations that it pays little corporate tax in the country, Cameron added: Companies need to wake up and smell the coffee, because the customers who buy from them have had enough.
Italy Imposes E-payments Ban on Vatican

The new year began with authorities in Italy preventing all electronic payments (e-payments) inside the Vatican City, in response to complaints that it has failed to introduce new anti-money laundering (AML) measures. The Bank of Italy (BoI) suspended all bank card payments on Vatican territory from 1 January and ordered Deutsche Bank Italia (DBI), which manages e-payments for the city state, to turn off its systems. Tourists and pilgrims visiting the Vatican City were obliged to pay for all purchases, including entrance tickets for the Sistine Chapel and museums, by cash or cheque. Also affected were the Vaticans pharmacy, shops and post office, which were left unable to transfer money or accept e-payments. Around five million tourists visited the Vatican museum in 2012, spending a total of 91.3m on tickets and souvenirs. According to Italian press reports, BoI officials have become increasingly concerned by the Vaticans reluctance to implement new AML rules and withdrew authorisation for DBI to continue handling bank card payments within Vatican territory. E-payments will continue to be suspended until a replacement for DBI is found, which Vatican spokesman Federico Lombardi said was a task already underway. He declined to comment on the BoIs action beyond saying that he expected the problem to be short-lived. The ban was still in force late January, although talks were underway to resolve the situation. Pope Benedict XVI has promised greater transparency in Vatican finances and the operations of its bank, the Institute for Works of Religion (IOR), which has in the past been implicated in major money-laundering scandals. Last July a report by Moneyval, a department of the Council of Europe, reported that considerable progress had been made but there were still continuing failures in some areas, including the IORs management.
The EU and the US together, we actually make up a third of all global trade. A deal between us could add over 50bn to the EU economy alone
He also warned fellow EU politicians: Europe is being outcompeted, out-invested, out-innovated. And it is time to make the EU an engine for growth, not a source of cost for business. In order to compete effectively with other nations that were growing and changing fast, European countries needed to deal with their debt loads and cut business taxes.
BCBS Agrees to Dilute Basel III Bank Liquidity Rules

The Basel Committee on Banking Supervision (BCBS) announced on 6 January that it had decided to relax its stance on the Basel III accord. The news will come as a relief to banks - and some corporates worried about an impending lending squeeze - after the US said late last year that it would delay implementation.
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> NEWS BRIEFS CONTINUED The group of global regulators and central bankers said that the so-called liquidity coverage ratio (LCR) applicable to the worlds top 200 banks will still be phased in from 1 January 2015 but will not take full effect until four years later. Banks will still be required to hold a buffer comprising sufficient cash and easily sellable assets to tide them over during an acute 30-day crisis. However, the agreement will give banks the next two years to build up a buffer of at least 60% of the required size and in subsequent years that will need to increase by at least a further 10 percentage points annually until reaching full size by 2019, when all of Basel III must be in place. According to Sir Mervyn King, outgoing governor of the Bank of England (BoE) who also heads the BCBSs oversight body, the revised timeframe ensures the new standards will in no way hinder the ability of the global banking system to finance the recovery. The BCBS also announced that more assets than previously planned would be considered liquid, such as corporate bonds, some shares and securities held against high-quality residential mortgages. However, at least 85% of the overall figure must be either in cash, top-rated government bonds or other central bank-issued papers.
In additional concessions to the industry, the BCBS changed its assumptions regarding the severity of the financial crises banks realistically might face, and will have to be able to withstand under the new rule. While the original rule required banks to assume that, in a theoretical 30-day crisis, they would see 5% of their retail deposits vanish this figure has now been reduced to 3%. And instead of assuming that corporate clients would draw down their credit lines by 100% in a crisis, the revised percentage is only 30%.
Japan Approves 10.3 trillion Economic Stimulus Package

The Japanese government announced on 11 January an emergency stimulus spending of about 10.3 trillion equivalent to around US$116bn - as part of prime minister Shinzo Abes initiative to boost Japans flat economic growth. We will put an end to this shrinking, and aim to build a stronger economy where earnings and incomes can grow, Abe said in a news conference. For that, the government must first take the initiative to create demand, and boost the entire economy. continued on page 13
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> NEWS BRIEFS CONTINUED The funding will be focused on public works and disaster mitigation projects, subsidies for companies that invest in new technology and aid packages for small business. Abe said that the stimulus package, one of the largest spending plans in Japans history, aims to raise the countrys real economic growth by two percentage points and to create 600,000 new jobs. Abe, who returned to power in December, also called on the Bank of Japan (BoJ) to emulate the US Federal Reserve by including jobs growth in its mandate. He also urged Japans central bank to intensify its commitment to beating deflation, which has been a feature of Japans economy for almost two decades, by pumping more money into the economy and encouraging Japanese businesses to invest and consumers to spend.
Moscow Exchange Plans IPO to Boost Capital Markets

The Moscow Exchange, Russias main venue for trading in stocks, bonds, foreign exchange (FX) and derivatives, plans an initial public offering (IPO) in an effort to persuade more Russian companies to opt for a domestic listing rather than one abroad. Although a statement issued by the exchange on 21 January did not offer a figure for the size of the offering, press reports suggest that it could be as much as US$500m. The Moscow Exchange was formed in 2011 by the merger of Moscows two main stock exchanges, Moscow Interbank Currency Exchange (MICEX) and the Russian Trading System (RTS). The combined MICEX-RTS, which was valued at around US$4.5bn, promoted itself as a one-stop shop for trading in a full range of financial instruments. Associated execution, clearing and technology/connectivity options are also on offer. The Moscow Exchange will offer shares to Russian institutional and retail investors, as well as offshore investors and qualified institutions in the US. However its biggest single shareholder, the Central Bank of Russia, will retain its 24.3% stake. Other shareholders include Sberbank, with 10.3%, as well as Unicredit, VTB, Gazprombank, US private equity fund Cartesian Capital and the Russian Direct Investment Fund (RDIF), a state-backed private equity fund. Russias president, Vladimir Putin, has expressed his ambition for Moscow to become a major global financial centre and arrest the trend for Russian companies to seek listings in London and New York. However, investors have expressed reservations over shareholder rights in Russia and a sharp decline in trading volumes. Figures issued by the exchange suggest that the volume of MICEX-traded stocks dropped by around 40% last year to roubles (RUB) 9.1 trillion, or around US$300bn.
We will put an end to this shrinking, and aim to build a stronger economy where earnings and incomes can grow,... For that, the government must first take the initiative to create demand, and boost the entire economy.
These wishes were promptly granted on 22 January. World stock markets jumped as the BoJ officially confirmed further stimuli to generate growth, including a doubling of the countrys target inflation rate from 1% to 2%. The BoJ said that it would aim to achieve a 2% inflation rate at the earliest possible time by adopting stimulus policies similar to those employed by the Fed. This will include an open-ended commitment, beginning in January 2014 when its current round of asset purchases is due to expire, to buying 13 trillion of mostly short-term government debt each month until the target is met. Masaaki Shirakawa, the BoJ governor, said that the new measures represented a resolute advance and the central bank had strengthened co-operation with the government. Japans inflation rate has rarely been as high as 2% in the past 15 years, which have been marked more by persistent mild deflation. Abes Liberal Democratic Party gained its return to power after three years of opposition, largely helped by its pledge to end price declines to give companies and consumers a greater incentive to borrow and pull the worlds third-largest economy form recession.
Global Employment Market Shows Stability for Hiring Professionals

The jobs market for professionals and managers around the world appears to be relatively stable, according to a survey issued at the start of 2013 by multi-national recruitment firm Antal International. Its Global Snapshot project, canvassing responses from 16,832 companies across major markets, asked respondents whether they were currently hiring at professional and managerial level and if they planned to do so over the coming three months. They were also asked whether they were currently letting staff go, or had plans imminently to do so.
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Responses suggested that hiring levels across the globe continue to fall steadily, with 47% of companies currently recruiting at professional and managerial levels, against 51% in the previous survey last August and 55% in April 2012. A similar percentage of organisations (46%) intended to hire over the coming quarter. The findings by region were as follows: Western Europe: Highest levels of hiring were found in Denmark (64%) and Finland (62%), and the lowest were in Spain where only 31% of companies questioned were in the process of recruiting at professional or managerial level. The UK job market remained relatively stable in Q412 with 46% of employers hiring at managerial and professional
Responses suggested that hiring levels across the globe continue to fall steadily, with 47% of companies currently recruiting at professional and managerial level
level and 45% of businesses planning on recruiting for senior roles in Q113. The proportion of UK companies currently firing is 30%; in line with neighbouring countries and 1% lower than expected. Greeces employment market shows strong signs of improvement despite the countrys uncertain economic climate. Hiring levels have risen significantly in recent months, with 50% of companies now recruiting at managerial and professional level compared to 33% last August. Central and Eastern Europe and Eurasia: Highest levels of recruitment in this region were found in Turkey (66%), Israel (65%) and Russia (63%). The lowest was recorded in Croatia, although still in line with the national average at 47%. Middle East: Employment markets remain relatively strong across the region with even the weakest in United Arab Emirates (UAE) registering a 49% hiring rate, although down from 54% in August. Highest levels of recruitment were found in Qatar (62%). Africa: Recruitment markets in Africa are booming. Although hiring levels in South Africa remain respectable with 47% of companies recruiting at managerial and professional level, emerging economies such as Botswana (82%) and Nigeria (70%) are performing most strongly. Antal expects these high levels of recruitment activity to continue next quarter. Asia Pacific: The Philippines recorded the highest level of recruitment activity in the region with 71% of organisations
currently hiring, while activity in China has contracted from 72% to 59% since last Augusts survey. In India the percentage of organisations increasing headcount had also fallen, from 62% to 40%. The Americas: The US and Canada both registered 52% of businesses currently seeking staff. In Latin America the most buoyant hiring market was in Chile where a more modest 47% of businesses were hiring at professional and managerial level. The results of the latest Snapshot indicate greater stability throughout the international staffing sector, said Antals chief executive officer (CEO), Tony Goodwin. Feedback from our clients across the globe suggests that many are under pressure to do more with fewer resources, particularly human ones. Despite a consistent decline in the percentage of companies hiring, a steady fall in the percentage of organisations shedding staff - down from 20% in April to 18% in August and just 16% in December - infers that workforces are stabilising and offering more in the way of long-term security to employees..
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> SEPA FOCUS
SEPA: Are You Ready for the Opportunities?

With the 1 February 2014 deadline for single euro payments area (SEPA) adoption by European organisations now just one year away. Bob Stark of Kyriba Corporation looks at the strategic advantages and process improvements that can be realised by those that move to SEPA.
which will be afforded after SEPA compliance has been attained. Some of the more strategic benefits that can be realised once SEPA implementations are complete include: An increase in direct debit programmes. Simplification of banking structures. Transforming treasury organisational structures. Centralisation of payments and collections. Evolution to treasury as a business partner. potential to increase cash visibility, while potentially costing less to do so.
Simplification of Banking Structures

Most corporate treasurers have already realised that one of the key benefits of adopting SEPA is the reduction of bank accounts. As the requirement for fewer bank accounts equates directly to a reduction in banking costs, the financial benefits of this are easily calculated. The importance of cost reductions should not be discounted, yet perhaps a more important consideration is that the complexity of banking services may also be a candidate for review. For many organisations, services such as notional cash pooling and netting have been the preferred tools to minimise the movement of funds when managing global cash. Yet, in a post-SEPA environment, demand for these services may be lessened as the ability and cost to physically transfer funds decreases. Going a step further, we can foresee increased demand to implement internal in-house banking (IHB) structures, which would also put pressure on the number of bank accounts and services that the treasury team consumes.
Bob Stark, Syriba Corporation
Adoption of SEPA offers a number of immediate opportunities for enterprises, but firms must move now to achieve them as the 1 February 2014 migration date approaches. For corporate treasurers, the primary short-term benefits will be a reduction in the volume of administration required to manage multiple payment types and formats, as well as the standardisation of customer and supplier payment data brought about by the harmonised single euro payments area (SEPA). Many early adopters have also identified the potential to achieve cost savings through increased productivity, as well as the reduction in direct payment costs attributable due to more payments being domestic SEPA transfers or debits across the continent. Yet despite these important benefits, it could be argued that the true value of SEPA lies not in its immediate benefits but rather the strategic opportunities
Increase in Direct Debit Programmes

Among the most significant of these opportunities is the potential scalability of direct debit programmes that SEPA can drive. On the surface, the potential harmonisation of incoming and outgoing payment formats delivered by SEPA will greatly simplify management of the credit and debit process for treasurers. While this simplification in itself offers obvious benefits, its worth noting that the convergence will also make it easier to initiate a direct debit programme. For many organisations, particularly those with a specific profile of receivables, increasing the use of direct debit will improve the efficiency of open account trade relationships and significantly improve working capital metrics. In addition, it will also increase transparency and certainty of cash forecasting. For these reasons, the opportunity to either initiate or expand direct debit programmes offered by SEPA should be recognised for its
Transforming Treasury Organisational Structures

For many organisations, the structure and locations of the treasury team have been driven by cash mobility (or sometimes, lack thereof) in various geographic regions. In non-EU domiciled organisations, a European treasury centre was often a must to ensure cash management was performed properly and in a timely manner.
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Whether the treasury operations are in London, Paris, New York or all three locations, less time will be required from the treasury team to administer payments and money transfers across Europe, post-SEPA. This reduced workload can also translate to the redeployment of resources possibly even to non-EU locations via increased standardisation or to other areas of the organisation. For this reason, many believe that SEPA itself may indirectly influence a further decentralisation of treasury resources, as cash managers become more geographically specialised. This type of transformation can only benefit organisations as they look to increase visibility and control of financial information across all regions and operations.
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Centralisation of Payments and Collections

In recent months, there has been much discussion in the industry about the various mechanisms that may be used to centralise payments and collections. Often, it is suggested that payments-on-behalf-of and collections-on-behalf-of (POBO/COBO) models can deliver efficiency, flexibility, and timeliness to the payment and collection process. SEPA will directly influence the popularity of these models. The reason for this is simply that the less complicated the payment processes and resulting administration, the easier it is to internally justify the establishment of payment factories, collection factories, and shared service centre (SSCS). On the surface, this may not seem counterintuitive. Yet it is well known by project sponsors that when the project scope decreases, the project becomes more manageable and the likelihood of achieving the overall objectives will increase. Once goals are seen as more realistic, business transformation projects seem to have a greater likelihood of gaining internal approval. In this respect, treasury and IT as a supporting unit will have more opportunities to achieve operational efficiency in corporate payments and collections.
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Treasury as a Business Partner

It is well accepted in the corporate community that the direct and indirect benefits that can be derived from SEPA adoption and implementation offer improved productivity and reduced treasury administration. By increasing team efficiency, a SEPA implementation indirectly frees time and energy for the treasury team to perform higher-value activities such as analysis and information intelligence projects which they often dont have enough time to carry out. As a consequence, if the treasurer is able to dedicate more of his or her teams time to projects that generate strategic value such as supporting the growth and expansion of the business treasury can finally be seen as acting as a true internal business partner. Significantly, this transition may also serve to elevate the treasurers perceived value within the organisation; a goal that every corporate treasurer would welcome.
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> SEPA FOCUS
Case Study: How Germanys UTA Implemented SEPA Direct Debits

German group UTA is a transport services provider operating throughout Europe. It began its SEPA Direct Debit (SDD) implementation programme in 2010 and is now ready for the 1 February 2014 launch date. The UTA service card allows for the cashless settlement of vehicle costs, such as diesel, tolls, and breakdowns, in 37 European countries, so moving to a continent-wide uniform direct debit system has had huge benefits for the company. Thomas Wolpert, the groups senior credit manager spoke to gtnews on the challenges that UTA and its banking partner, Commerzbank, faced on the way to becoming SEPA ready.
UTA were interested in the harmonised single euro payments area (SEPA) Direct Debit (SDD) scheme for business-to-business (B2B) end users from the very beginning of the payments harmonisation project as it offered a solution to the cross-border complexity the company has to deal with. UTA began an implementation project back in early 2010, explains Wolpert. The first test SDD (B2B) transaction was handled by Commerzbank in December 2010. During 2011 and 2012, further tests were run, gaining valuable experience and optimising the processes. At the end of October 2012, UTA began sending SDD (B2B) request mandates to customers, continues Wolpert. It is currently sending out more than a 1,000 SEPA mandate packages every week, providing them with information and a request to start using the SDD (B2B) mandate format. UTA tested the process intensively from 2011 until May 2012 during this time it sent out 200 SEPA packages per month to UTAs bigger clients. After that, it felt confident of having a functional and satisfactory process in place.
Before UTA could start using the business-to-business (B2B) SDD system, all of the companys systems had to be modified. It had to ensure that all national direct debit systems could run concurrently until 2014, when the migration deadline for SEPA begins.
The first customers the company sent the SDD (B2B) request mandates to were companies with a high turnover. Previous experience showed that these companies already have some SEPA knowledge, while smaller companies are less aware of the initiative. UTAs main partner for the SDD implementation was Commerzbank. Together, they conducted a SEPA business-impact analysis, which provided data on the nature and effects
Thomas Wolpert, UTA The direct debit payment instrument is essential to the business model of Union Tank Eckstein GmbH & Co. KG (UTA). The German transport services provider serves European passenger and commercial goods drivers and customers, which need to make payments for motorway tolls, diesel or breakdown charges as they travel across the continent. The UTA service card is the means to do this. The multi-use payment card product can be used in 37 different European countries. However, the firms business model also means that it has to process direct debits from each European country, explains Thomas Wolpert. With differing systems in each country, this was a very complex process, which necessitated bank accounts in each nation.
Starting the SEPA B2B Implementation Process

Before UTA could start using the business-to-business (B2B) SDD system, all of the companys systems had to be modified. It had to ensure that all national direct debit systems could run concurrently until 2014, when the migration deadline for SEPA begins. This complexity required comprehensive coordination at the system level as well as between UTAs customers and their banks.
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of the SEPA introduction. Commerzbanks SEPA specialists were on-hand for advice throughout. Meanwhile, the IT systems adaptation was done by UTAs own IT department. This was a major undertaking because it has an in-house system - rather than an SAP system and there was an enormous amount of detail involved.
ahead of the 1 February 2014 migration date for eurozone countries (non-euro countries follow in 2016), were numerous but principally the benefits to UTA are: Standardisation of SEPA processes in all European countries. This means staff no longer need to be conversant with numerous direct debit procedures, just one process is sufficient. Optimisation of the banking and cost structure. Better risk control through the uniform repeal deadline in all countries. Return debit handling is also standardised, which is a great improvement on the various return debit handling processes.
Smoothing Out the Glitches

The SEPA implementation is an on-going business. UTAs customers and their banks send the treasury team frequent queries, which it has to resolve. On the whole, UTA has found that the main points of the SDD (B2B) implementation process are clear, but this isnt always the case for some of the smaller details.
This was a major undertaking because UTA has an in-house system - rather than an SAP system - and there was an enormous amount of detail involved.
For example, at the moment, there is a lack of clarity over the validity of electronically archived SDD (B2B) mandates. With this scheme, the onus is on the corporate to keep and archive its SDD (B2B) mandates (in the case of Abbuchungsauftrgen, the legacy B2B direct debit scheme, this was previously done by the debtor bank). At present, a physical paper copy of the mandate needs to be kept on file. UTA hopes that a functioning and secure electronic process will be made available as quickly as possible because the paper-based handling causes significant problems. For example, if a customer changes bank and the changeover needs to be processed manually, this can cause a delay to the payment. Another issue that arose during the early stages of SDD (B2B) implementation project was a problem with UTAs mandate reference number. UTA used a full stop (.) within the number, but many debtor banks werent able to process it in their systems. After many checks, treasury re-created a reference number without a full stop and its now working better. This is just one example of the small technical issues that need to be ironed out as you go along.
However, corporates also need to bear in mind the following challenges and considerations: The complexity of the SEPA introduction should not be underestimated. Its not just an IT project, the whole organisation is affected. Customer communication is paramount because many smaller companies still have low SEPA awareness. Likewise, communication with banks is also important. Its not always easy to identify the SEPA expert at a bank. Error handling procedures, such as incorrectly completed mandate forms, should not be underestimated. Resolving such errors with your customers can be time-consuming.
UTA is prepared for the SEPA compliance deadline on 1 February 2014. It can now use standard SEPA Credit Transfer (SCT) payments and a uniform direct debit system across the whole SEPA region. This means it just needs one direct debit mandate format and can also optimise its bank account structure. At the moment, UTA still has the national direct debit systems running in parallel so at this stage its too early to make any judgements about the real benefits of the SDD (B2B), but it expects to gain definite efficiency benefits. Wolperts recommends that companies address the topic of SEPA as soon as possible and start the implementation. There is little effective time remaining until the 2014 migration date and banks really have to get the message across to their customers about what is required for the transition to SEPA. Since the beginning of last year, there are signs of increasing SEPA awareness among UTAs own customers, but banks and businesses still have much to do in terms of education.
Benefits and Pitfalls of an SDD Implementation Project

The advantages of completing a SEPA migration project,
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> SEPA FOCUS
A Lesson from Scandinavia

European treasurers preparing for the introduction of the single euro payments area (SEPA) in February 2014 could do worse than look to Scandinavia, where Finland was an early adopter of SEPA payment instruments, says Tapani Oksala, product manager for Itell Information. Finnish corporates and their treasury teams learned many valuable lessons, which can now be shared with other treasuries.
a business case, especially for those companies operating only domestically. Added to that, in Finland it was decided that the scope of SEPA was to be wider; in addition to SEPA credit transfers (SCTs) it was to include salaries, tax payments, local express payments, and cross-border payments, with SEPA direct debits (SDDs) to follow on. solution to help them become ready before the national end date; effectively someone to hold their hand throughout the project. I believe that studying Finnish examples can now provide this information for treasuries elsewhere.
Benefits of Early Preparation

Today the discussion around SEPA compliance in Central Europe is similar to that which took place in Finland a couple of years ago. It is now widely recognised that something needs to be done; the downside is that hundreds of thousands of corporations across the eurozone are doing the same thing at the same time. The schedule, or end date, is set from a legislative perspective and leaves no room for extended project plans. The tight time frame also means huge pressure for qualified persons who are able to work with SEPA projects, and perhaps a shortage of suitably skilled people.
Looking Beyond Banks and Vendors

Tapani Oksala, Itell Information It quickly became evident that development phases varied from one bank to another in Finland. Technical readiness did not guarantee that banks were actually fully prepared with their processes, support, knowhow or agreements to support businesses and treasuries. The level of preparation varied even more between enterprise resource planning (ERP) vendors due mainly to the fact that banks were simply not ready back in 2008. Furthermore, as Finland had decided favorably upon additional optional services that extended beyond the basic SCT scheme, it did not make the job any easier for big central European ERP vendors. During these confusing times Itell Information asked customers who used its OpusCapita cash management software what their needs regarding SEPA were as the national end date approached. The response was quite unanimous: they wanted professional advice on what SEPA actually meant for them, and how the migration could be carried out in practice. They wanted help from someone with a secure and risk-free
Before the so-called migration end dates for the single euro payments area (SEPA) 1 February 2014 for the EUs eurozone members; 31 October 2016 for its non-euro members - were set in stone, there was widespread doubt over whether SEPA was even going to happen. Finlands businesses experienced this uncertainly over how and when the changes involving SEPA should to be carried out more than most as the countrys government - and many firms -were among the first to start using SEPA-compliant payment instruments. Finland, as the most northerly eurozone member, was an early adopter of SEPA and the second country to implement the migration, with the first national migration plan completed in 2008. At that time the credit crunch was at its worst and investments for SEPA migrations were difficult to justify on the corporate level. It was hard to prove there was
The response was quite unanimous: they wanted professional advice on what SEPA actually meant for them, and how the migration could be carried out in practice.
Companies need to be able to book their internal recourses, ERP and other vendors resources, as well as external consultants for their SEPA project. A general rule of thumb
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has been that those that opt to start their migration early could experience a few more challenges but this is offset by the ability to access the best experts available and gain efficiency benefits. Those that start late will end up with whatever resources are left. SEPA is all about harmonised payment types and rules with the euro as the currency concerned; with non-eurozone countries joining in 2016. From the customers point of view it also means that they
from basic bank account number (BBAN) to IBAN. The ERP or middleware vendor can be the most important SEPA advisor for a company, as the old maxim practice makes perfect applies to SEPA projects as well. In a multivendor project like SEPA, scheduling of the rollout is vital for success. There are so many factors that affect the final outcome. Additionally, as there are so many
In a multivendor project like SEPA, scheduling of the rollout is vital for success. There are so many factors that affect the final outcome. Additionally, as there are so many different players involved, it brings that extra challenge to the project.
have to use new standards like international bank account numbers (IBAN) and the mandatory ISO 20022 XML messaging format. All companies, if they have not already started, should now be creating their migration plans and gathering together their teams. different players involved, it brings that extra challenge to the project. One should also not underestimate the efforts needed for end-to-end integration testing to ensure a smooth migration.
Get Ready
For the migration plan the first thing to decide is when you wish to be ready. That time period, minus vacations, should give you some sort of an idea what kinds of goals can be reached in the interim. In most cases the 1 February 2014 end date means only the bare minimum can be achieved at this point, or that the focus turns to the two most critical instruments: SDDs and SCTs, depending on which country and what field of industry the company operates in. This will create a need for system changes and conversions in order to reach the goals. The usage of the ISO 20022 XML standard is mandatory, according to the regulation, and it is a major part of a SEPA treasury compliance project. For those companies that cannot use this format, it will be necessary to employ some sort of conversion service in order to comply with the regulation. They might be well advised to ask what the capabilities of their ERP vendors around ISO 20022 XML are, and how the master data can be converted
Payment Factories are the Future

Ultimately, if you regard SEPA as no more than a system change, then that is all you will get from it. To be able to get the maximum benefit from a change of this magnitude, you should re-think your approach. ISO 20022 XML and its business model are a catalyst in this change. SEPA is an opportunity and will most definitely increase the demand for international payment factory solutions. Migration to the ISO 20022 standard will produce clear benefits to payment processing that reach far beyond SEPA as business can also carry out their international and non-euro domestic payments using the same standard. Treasury efficiencies should be obtainable. There is clearly a trend for centralisation and payment factories as they bring benefits to corporations. Payment factories may not be established right away but they definitely represent the logical next step - right after complying with the regulation.
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> CONTINGENCY PLANNING
Managing the Unthinkable

Five years of volatile economic and business conditions have underlined the need for corporate treasurers to prepare for various potential scenarios. Robert Bergstrom, managing director of Accenture, outlines how enterprise performance management (EPM) can be used in strategic planning and as the foundation for risk management strategies.
Global interdependence, with companies sourcing talent and resources while opening up markets for their own products and services. Technological innovation, as inexpensive cloud computing, telecommunications and social media increase global interconnectedness. Certainty: Planning processes can be used to isolate factors affecting an organisation and can assist in identifying and balancing financial and non-financial. Agility: Processes can be designed to address multiple scenarios, identify triggers or leading indicators of scenario change and suggest appropriate actions when these are identified.
Robert Bergstrom, Accenture Since 2008 the business community has operated in a volatile environment, with new risk demands placed on corporate treasurers. The extraordinary has become ordinary; the unthinkable a reality. A series of material trends has re-shaped our world: The rise of China, India and Brazil, where wealth creation and rising consumer demand has led to new areas of regional responsibility for multinational corporate (MNC) treasurers. Demand for everything from oil to corn creating boom and bust cycles, making commodities risk a major issue for treasurers. Demographic change, as rapid population growth in some countries and an aging, shrinking population in others create shifting demand patterns. Environmental concerns including climate change, water scarcity and resource depletion; which threaten supply chains.
The past is no longer a good predictor of the future. Management and boards, as well as investors and other stakeholders, question the wisdom of basing strategies, plans and budgets on a single, static view of the future extrapolated from past performance. Corporate treasurers face increasing pressure to find better ways to support the core business by managing volatility and risk. Challenges include setting long-term capital investment priorities; establishing credible targets and annual plans; analysing the impact of material events on strategies and plans; and effectively managing cash and capital. Traditional planning processes are largely obsolete. A single view of the future is typically time-consuming to prepare and rapidly made irrelevant. Organisations can respond to these dynamics by changing their planning capabilities in three areas: Pace: Organisations can shorten development cycles, with less emphasis on detail and more on predictive ability. They also can update plans more frequently in response to events, supporting faster decision-making and more effective cash management.
Such a capability, based upon scenario-based enterprise performance management, can address risk and volatility, and lead to faster, more confident business decisions. As the environment grows more complex, so can the advantages of scenarios over techniques such as sensitivity analysis, which can analyse changes one variable at a time. Scenarios, however, typically consider combinations of uncertainties and their significant interactions.
Scenario Planning
Scenario-based enterprise performance management (EPM) can assist strategic planning and also business planning, forecasting, reporting and analysis, providing the foundation for risk mitigation strategies, integration of early warning measures into performance management and - perhaps most valuable - managing the unexpected nature of day-to-day business. It also can help firms transform planning and reporting processes, from reactive to a valuecentric capability. Incorporating a scenario capability into an organisations EPM processes involves multiple steps, including:
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1. Identify key factors that can have a material impact. For example, consumer products companies may look at gross domestic product (GDP) growth and consumer spending, airlines at oil prices, global manufacturing companies at exchange rates and freight costs. 2. Define three or four relevant scenarios that describe a range of future operating environments. For example, what if oil prices average US$75 a barrel, US$120 a barrel or US$200 a barrel? 3. Agree on a baseline scenario for reviewing strategy; setting targets and developing operational plans and budgets . 4. Develop strategic plans, targets, action plans and budgets using this scenario. For example, the company may agree a target of growing revenues by 8%. Strategies to reach this target might include selling more to existing customers and acquiring new customers. 5. Develop alternative views of targets, plans and budgets under each scenario, and identify the major impacts and changes under each of them. For example: What will be the impact on key financial metrics such as sales, margins, costs and earnings? How will investments/projects be re-prioritised? What will be the impact on product mix, pricing risk and promotional spending?
alternative sets of targets under both US$110 and US$140-per-barrel scenarios. The value of this scenario planning became clear as prices jumped from the US$79 baseline to average more than $110 per barrel early in 2011. The target setting process in a scenario-based EPM environment often involves a shift from setting absolute targets. As the expected rate of industry growth would change depending on a scenario, for example, so would the targets. Once targets are set, an organisation can develop tactics and resource allocation plans to meet them. The budget, as a financial representation of both, can validate the adequacy of plans. Moving to a scenario-based EPM approach adds one more step. Once baseline plans are complete, an organisation can identify changes to the tactical, resource allocation and financial plans that would take place under each scenario. For example, a pharmaceuticals company could show how delayed regulatory approval of a new drug could impact its merchandise assortments and promotional spending should the economy tip into recession.
Evaluating the Case for Investment

The case for investment - entering new markets, building new plants, making acquisitions, launching new products and adopting new technology - can be evaluated under a range of scenarios to identify circumstances under which specific projects might no longer be attractive. A consumer products company that wants to enter new markets may look at the likely demand for its products under multiple scenarios based upon forecasts of gross domestic product (GDP) growth and consumer spending levels. Treasury could look at which country(ies) to invest in and those to avoid. Before investing it is important to understand the assumptions on which it is based, and to define clear abandonment criteria, under which an investment or project no longer makes sense.
6. Identify relevant triggers and tolerance ranges for each scenario to be monitored on an ongoing basis to provide management with advance warning of material changes. 7. Whenever established triggers or tolerances are exceeded - meaning a new scenario becomes effective - adjust tactics using previously-developed plans and generate a new forecast reflecting the changed scenario and tactics. Using scenarios to provide insight into the choices and trade-offs to be made in strategic planning can increase flexibility and access to a broader range of growth and finance options.
Monitoring , Forecasting and Action Planning

While most companies using scenario planning claim they monitor leading indicators for key internal and external factors affecting their business, less than two-thirds have established tolerance thresholds for these indicators and connected them to scenarios in order to detect when the current baseline has lost validity and an alternative scenario become material. In scenario-based EPM, monitoring of indicators designated as scenario triggers is ongoing. Monitoring frequency can vary, depending on the volatility of indicators and the general business environment . What often stays the same is a structured, consistent approach. In general, forecasts can be developed using a best
Setting Targets and Tactical Planning

Typically organisations set targets annually to guide planning and budgeting processes, often based on past performance, strategic plan objectives and/or external market expectations , A scenario-based EPM capability uses scenarios as a fourth input. For example, a multinational transportation company built targets for 2011 using a baseline assumption for oil prices of US$79 per barrel; then a realistic assumption. However, as part of the planning process they developed
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prediction principle, based on the most reliable information available. Many companies, however, base forecasts on the ambitions of the board and top management, which can mask the need to develop rational action plans to help achieve agreed-upon performance targets. To avoid this problem, forecasts prepared under scenariobased EPM can explain both the predicted impact of a specific scenario on business performance and the expected result of executing agreed-upon corrective actions to close gaps in reaching short and long-term targets. In scenario-based EPM, it is important to have pre-defined action plans so the organisation can implement them when a particular scenario unfolds. Scenario changes can require changes in pricing, promotion, production scheduling and inventory management. Business continuity planning, to protect the supply chain, is also a good idea. Clearly, companies that have established scenario triggers and associated thresholds may be in a much better position
to maximise the benefits from early detection of scenario changes and execution of their pre-determined action plans. Companies can obtain significant benefits by developing a scenario-based EPM capability. It can lead to better formulation of strategic plans, tactical plans, budgets and forecasts by helping them think more broadly. Management can look at a wider range of possible outcomes, identifying opportunities as well as potential problems. The dialogue and debate inherent in effective scenario planning often leads to new insights about the interaction of various factors in the business environment and their impact. At a time of intense market uncertainty, we are seeing broader use of scenario-based EPM as a tool for determining how businesses respond to various situations. It could become the basis not just for avoiding risk, but for identifying and seizing growth opportunities in any market, despite the uncertain business environment.
> PAYMENTS-ON-BEHALF-OF (POBO)
Treasury Benefits of POBO and COBO and the Technology that Underpins Them
Through the establishment of payments-on-behalf-of (POBO) and collections-on-behalf-of (COBO) structures, treasurers are seeking the next level of corporate-wide efficiency. Art Hernandez and Guillaume Metman of SunGards AvantGard describe how these structures provide opportunities to focus in on strategic activities and cut costs, while reducing the time spent on operational tasks.
Large multinational corporations (MNCs) are usually made up of many different legal entities, be it for historical, geographical, legal, fiscal, or risk management (i.e. limitation of liabilities) reasons. This multiplicity has a negative impact on the costs of MNC treasury/banking relationships, which are often fragmented and redundant, incurring unnecessary cost. When it comes to payments, large corporate treasuries have been trying for some time to reduce their bank fees, using various techniques, such as cash pooling, the netting of intra-group flows, or the centralisation of risk management. Most of these techniques already required the setup of an In-House Bank (IHB), where current accounts are used to account for and settle inter-company obligations within the group. Payment factories also emerged, mainly to consolidate processes in Shared Service Centre (SSC), and reduce operational risks by centralising payment flows, usually starting from a technical point of view (payment flows remain independent functionally, but share a common IT processing and communication platform).
Art Hernandez, SunGard
Guillaume Metman, SunGard
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When it comes to payments, large corporate treasuries have been trying for some time to reduce their bank fees, using various techniques, such as cash pooling, the netting of intra-group flows, or the centralisation of risk management.
Payments-on-behalf-of (POBOs) are a tool that treasurers equipped with an IHB and a payment factory can leverage to further reduce their banking fees and simplify their cash management, through: The reduction of the number of foreign currency accounts held within a group (by consolidating them at the treasury level). The reduction of cross-currency payments (by leveraging local accounts whenever possible). The economies-of-scale that a consolidation of payments flows allows.
POBO
POBOs pose several challenges. The most obvious ones are already well-known by central treasurers: compliance issues, bank monopoly constraints, tax implications, increased liability of the group and its funding partners versus the subsidiaries. Another challenge is linked to the increased operational risk that treasury is taking when processing the payments of others: who should investigate, and be responsible for issues at the bank side? How do you build a resilient IT system able to process a massive amount of transactions? But the most important and new challenge is linked to reconciliation issues: On the ultimate debtor side: how to track the execution of payments when the original batches have been split? How to manage bank reconciliation when the ERP does not know upfront which bank account will be used to settle an obligation? On the third party side: debtor information cannot be used anymore for matching purposes, potentially raising a problem. This requires that information about the ultimate debtor and/or detailed, high-quality remittance information, is made available along the whole settlement chain, from the payment initiation message, though the banks and clearing systems, up to the account statement of the third-party.
Practically, the concept consists in having one legal entity, named the debtor (for example the central treasury) pay a third-party (such as a supplier) to settle the obligation of another legal entity of the same group, named ultimate debtor towards that same third-party. This can be done using a star-model (where central treasury pays on behalf of all subsidiaries), or a web model (when the Chinese subsidiary pays all renminbi (RMB) payments, for example, wherever the originating subsidiary lies). While many choices have to be made, the processing of POBOs usually requires the following steps to be followed in the payment factory: Filter payments that are candidates for POBOs. Allocate the best disbursement account to be used for each of them. Optional: split and rebulk the original payment batches. Notify the IHB, to account for the intra-group obligation created between the ultimate debtor and the debtor. Generate a payment file using a modern and well accepted format such as ISO 20022, which can contain all necessary information (ultimate debtor and debtor, high-quality remittance information to allow reconciliation at the receiving side). Communicate the payment to the bank and track the payments execution. Optional: notify the remitting enterprise resource planning (ERP) systems (payment tracking, choice of allocated account, etc).
These challenges require a state-of-the-art, yet highly flexible, payment factory tool that can adapt to the exact context of the corporate treasury.
By introducing a logical system integrating indicators such as past behavior combined with bureau data, companies can prioritise their focus on the 30% of accounts that need attention.
Payments-on-behalf-of are no silver bullet, as their setup brings complexity, and therefore cost. And depending on the structure of the group, they may prove applicable, or not. But what is certain is that the progressive disappearance of legal constraints and the continuously lowered cost of technology already make it accessible to mid-caps. Once corporates finally realise the benefits they can gain from the impending single euro payments area (SEPA) environment by consolidating all their European disbursements in just a few banks, the enthusiasm for POBOs will I probably only accelerate.
COBO
On the accounts receivable side collections-on-behalf-of (COBO) enable credit and collections managers inside the treasury or elsewhere, to essentially outsource
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time-consuming collections tasks while keeping the appearance of in-house collections and maintaining a level of ownership and control. Use of COBO can be integral to recovering funds owed, as the responsibility of pursuing debtors is removed, freeing up more time for employees and management to focus on the core business. If used correctly, the COBO concept can offer a faster turnaround time when it comes to getting outstanding balances paid that may have otherwise gone unsettled. Introducing a technology solution into COBO can counter the common problems stemming from failures in communication and collaboration. Installing COBO technology with a collaborative portal creates better visibility, automatic data flow, and can ultimately lower expenses. Gaps in collaboration between a company and its COBO team can lead to inaccuracy, poor reporting time, overly manual processes, and a lack of visibility. Traditionally, collections can be a time-consuming process, and without complete information, time and money can be wasted chasing accounts that would pay anyway. In fact, McKinsey estimates in its quarterly report entitled Best Practices for Bad Loans that up to 70% of the early calls that go out to borrowers [are targeted at those] who would pay without a reminder. By introducing a logical system integrating indicators such as past behavior combined with bureau data, companies can prioritise their focus on the 30% of accounts that need attention.
Technology
Use of a portal with a user-defined business rule engine can help remove accounts and invoices from a collections state and automatically assign them to a collector, which cuts down on time that employees spend performing this process by hand and alleviates the possibility for data inaccuracies to arise. Then, the portal will automatically transfer these files to the collector, ensuring data integrity and reducing the costs associated with reformatting data. A COBO treasury structure becomes a real possibility. By introducing statistical modeling into the process prior to transferring materials, companies can determine which accounts should be transferred by predicting which accounts are likely to remain unpaid, thereby reducing costs by outsourcing only those accounts that need attention. Once the information has been transferred, using a portal can vastly improve communications and reduce time to payment by improving and automating the collection of revenues that are assigned to collection agencies. A solution can manage placement of accounts and invoices, as well as put controls into place for the tracking, reporting and reconciliation of all collections data that is placed at an agency. This can positively impact an organisation by offering it a means of reducing the operational and management expenses required to monitor and manage a relationship with any given agency. It can work just as well in the internal supply chain as well. Using an online portal can support communication in a COBO structure by providing the tools needed to identify and compare performance. Tracking how efficiently a collections agency is performing simplifies the process of determining the amount it should be paid for its service and helps determine whether a particular agency is fulfilling its purpose. The structure and its attendant web services technology can just as easily be used internally too. A portal can facilitate control by offering users increased visibility into the progression of an account or invoice. Gaining control over accounts receivable can help a company to increase their liquidity by increasing collections. Implementing a COBO system can allow a company to focus on strategic functions rather than time-consuming logistical tasks. To maximise the impact of COBO, using a system can help maintain greater control and improved collaboration and communication. In summary, companies would be well served to re-examine internal processes and look for opportunities to implement POBO and COBO to maximise resources, introduce greater efficiencies and reduce costs.
Once the information has been transferred, using a portal can vastly improve communications and reduce time to payment by improving and automating the collection of revenues that are assigned to collection agencies.
When a company initially outsources its collections, they need to prepare data for transfer to the collection agency, requiring the transmission of potentially massive amounts of information. This can even involve mailing boxes of documents in order to establish payment history and activity, leading to significant time spent and the potential for error if done manually. In addition, with collections pricing based on age of invoice, the faster the information can be transferred, the more the costs of outsourcing collections can be reduced. Implementing a receivables solution can vastly reduce the amount of time and manpower needed to transfer information while increasing accuracy and efficiency by employing automation to standardise data.
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GLOBAL TREASURY BRIEFING

Expert Commentary on Global Treasury and Finance

Time for Action

GLOBAL TREASURY BRIEFING | January/February 2013

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From the Editor

GLOBAL TREASURY BRIEFING

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January/February 2013 | GLOBAL TREASURY BRIEFING | 1

GLOBAL TREASURY BRIEFING | January/February 2013

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Another Year of Evolution

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January/February 2013 | GLOBAL TREASURY BRIEFING | 3

GLOBAL TREASURY BRIEFING | January/February 2013

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> VOX POP

2013: Whats on the Agenda?

None that Im aware of.

Moving banks and going, hopefully, to a better provider.

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January/February 2013 | GLOBAL TREASURY BRIEFING | 5

GLOBAL TREASURY BRIEFING | January/February 2013

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US-based Corporate Treasurer

None that I know of.

Less regulation, although that seems unlikely.

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January/February 2013 | GLOBAL TREASURY BRIEFING | 7

A Risky Business, But Still Attractive to Investors

GLOBAL TREASURY BRIEFING | January/February 2013

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January/February 2013 | GLOBAL TREASURY BRIEFING | 9

e o start th t e im t s It now! migration

Because SEPA is more efficient with Commerzbank!

Liability Regime Established

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> NEWS FOCUS CONTINUED

Group of 11 Push Ahead with Financial Transactions Tax

GLOBAL TREASURY BRIEFING | January/February 2013

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Italy Imposes E-payments Ban on Vatican

BCBS Agrees to Dilute Basel III Bank Liquidity Rules

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January/February 2013 | GLOBAL TREASURY BRIEFING | 13

Japan Approves 10.3 trillion Economic Stimulus Package

OCTOBER 2730, 2013 | LAS VEGAS ORIGINAL>ESSENTIAL>UNBIASED>INFORMATION

GLOBAL TREASURY BRIEFING | January/February 2013

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Moscow Exchange Plans IPO to Boost Capital Markets

Global Employment Market Shows Stability for Hiring Professionals

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GLOBAL TREASURY BRIEFING | January/February 2013

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> SEPA FOCUS

SEPA: Are You Ready for the Opportunities?

Simplification of Banking Structures

Bob Stark, Syriba Corporation

Increase in Direct Debit Programmes

Transforming Treasury Organisational Structures

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January/February 2013 | GLOBAL TREASURY BRIEFING | 17

Financial Planning and Analysis