Treasurers who do business in Europe must be aware that the deadline for compliance with Single Euro Payments Area (SEPA) regulations is fast approaching. What may be less obvious, however, is that the changes SEPA requires in a company’s handling of credit transfers and direct debits present an excellent opportunity to improve processes throughout the accounts receivable (A/R) function. Some Eurozone businesses that handle a large number of transactions are leveraging SEPA compliance activities to achieve big boosts in efficiency.
One company taking this approach is Carphone Warehouse, Europe’s largest mobile phone retailer, which has more than 2,000 stores and millions of mobile service subscribers. As part of its SEPA compliance activities, Carphone Warehouse has completely automated direct-debit management and streamlined much of the back-end processing of information going into and coming out of its core enterprise resource planning (ERP) systems. Treasury & Risk spoke with Kerry Lebel, senior director of product marketing for Automic, who helped the mobile phone retailer automate its payment-collection processes.
T&R: What challenges was Carphone Warehouse addressing when the company undertook its A/R automation project?
Kerry Lebel: Carphone Warehouse needed to consolidate payment information from each of their stores. They also needed to become SEPA compliant. The way SEPA requires payment files to be formatted is completely different from the formatting companies are currently using with local payment systems in individual Eurozone countries. And Carphone Warehouse needed to start collecting and storing IBAN [International Bank Account Number] data. They saw that they needed to centralize and standardize the processing of payment data across all their stores throughout Europe.
A lot of companies are dealing with similar issues. Not only do they need to figure out a new way of doing things to meet SEPA requirements, but while they’re moving toward that new way of doing things, they’re going to have to simultaneously manage both the old systems and the new systems. The transition period is going to create a significant amount of overhead. Centralizing data management and utilizing automation on the back end are good ways of handling this additional load, as well as streamlining SEPA compliance.
T&R: So, what types of information are Eurozone companies centralizing?
KL: For retailers, sales and inventory information are obvious choices. And for companies that do a significant amount of billing, it makes sense to pull all the information around SEPA direct debits [SDDs] into a central repository, including IBAN numbers and mandates.
T&R: What benefits do companies realize when they consolidate these types of information in a central data warehouse?
KL: Companies can usually achieve efficiencies by automating processes they’ve been handling manually. When they standardize the processing of direct debits, then they have only one way to handle SDDs companywide, in all the different countries where they operate. They can automate all kinds of checks and balances, which reduces the amount of human intervention that’s required in exception processing. Another big benefit, which is related, is that companies can enter new markets much more easily. They can move into new countries faster because they have consistent, repeatable processes.
For example, Carphone Warehouse can now move very quickly into new markets anywhere in the Eurozone; anytime they want to open a location in a new market, they just replicate their standardized process. And the automated handling of exceptions has enabled Carphone Warehouse to reduce direct debit failures by more than 90 percent.
T&R: Are companies also improving their decision-making by consolidating data on direct debits?
KL: Yes, some companies are using this type of project to improve their liquidity management capabilities. For example, some retailers are better able to understand their payment collection processes once they consolidate sales and direct debit information. They are pulling together data on their cash flows and developing visual reporting for it. By automating these reports and pulling them together in real time—versus running reports at the end of the day, end of the week, or even end of the month in large batch transactions—they get insights into what is really happening with their cash flow. And having this information tied together centrally makes it significantly easier to throw these reports onto somebody’s desk on a daily basis.
T&R: Are a lot of companies automating payments processing in this way?
KL: Most of the companies that we see doing this have strong subscription-based models. They’re companies that are dealing with a large volume of scheduled, recurrent payments. Mobile telecoms and power and utility companies are the ones that I’ve seen putting serious effort into this type of project.
T&R: What is motivating these particular companies to take their A/R processes this extra step beyond SEPA compliance?
KL: They’re looking at it from a completely different perspective. Some people look at SEPA from the point of view of all the additional work they have to do in order to be compliant, or possibly even just to feign compliance. But others, like Carphone Warehouse, look at it from the perspective of the things that they can gain by improving their business processes. They see SEPA as a forcing function that will ultimately help them grow their business faster.
T&R: After working on the automation of direct debits for Carphone Warehouse, and on other, similar projects, what advice do you have for U.S.-based companies that are trying to figure out the best approach to take to SEPA compliance?
KL: Stay focused on the benefits, not the work. It’s a situation of ‘pay me now, or pay me later.’ If you don’t have a heavy investment in the Eurozone, you may be able to take a more piecemeal approach to SEPA compliance. But for most companies, there are major benefits of tackling and addressing these issues right away. If they do, then as they grow in the future, they can simplify the process of moving into new markets—and they can reap the rewards much faster.