HSBC: Direct Action - Anthony Richter
The benefits of the SEPA Direct Debit scheme are derived not only from receiving payments quicker and cheaper than before, but also in standardising company processes across Europe, thereby reducing operational costs, explains Anthony Richter, head of business development, payments and cash management for HSBC.
Whereas previously companies have only been able to collect direct debits on a national basis, when the SEPA Direct Debit (SDD) goes live they will be able to collect direct debits cross-border. There are some obvious advantages, particularly in industries such as telecoms, utilities and insurance, which collect significant payment amounts in a number of countries across Europe.
The SDD will officially be launched on 2 November 2009, but it will not be mandatory for banks in the eurozone to be reachable for SDDs until 1 November 2010. HSBC anticipates that the region will effectively experience a soft launch of the SDD in November 2009. The real take off is likely to come from November 2010 onwards, when companies migrating to SDD will be able to switch off their current domestic direct debit processes and systems in the knowledge that all of their customers’ banks are able to process SDD debits.
Core and B2B schemes
There are two versions of the SDD: the core scheme, which is designed for the consumer market (for individuals who want to pay electricity bills, etc), and the business-to-business (B2B) scheme, which is designed to support the payment of trade debts. Treasurers who collect payments from other companies should look to discuss the B2B scheme with their customers, as it may provide benefits for both parties.
In the core scheme, the debtor can request a refund, for any reason, up to eight weeks after the debit has occurred whereas, in the B2B scheme, the debtor cannot claim a refund once the transaction has been debited. In the business world, if a company is paying another company under a direct debit to settle a trade debt, then the creditor company needs to be certain that the debt has been settled.
In the core scheme, the first transaction has to be submitted to the debtor’s bank by D-5 (five days before the debit is due) and subsequent transactions by D-2. This allows the debtor’s bank to advise the customer that a new direct debit has been received and to give the debtor a chance to reject the transaction (although it is not known how many banks will actually do this). In a B2B environment, transactions only have to be submitted to the debtor’s bank on D-1. Debtor companies will generally have advised their bank to expect the direct debit, so the same notice is not required.
Cheaper, faster, easier
The benefits of collecting funds via direct debit are well known. However, many companies operating across Europe may have avoided doing this in the past because of the range of national schemes with which they would have to work. By introducing a uniform practice defined under a rulebook, SDD will make the use of direct debits more attractive.
However, the SDD scheme can take these gains to a higher level. A company may already collect funds via direct debit, but until the launch of this new instrument, it has had to have a bank account in each country. By using SDD, companies could rationalise their collections infrastructure, and consolidate operations and banking relationships, which helps to increase efficiency and straight-through processing (STP).
By centralising collection activities in one location rather than having multiple locations, companies will also see improved cashflow management and reduced overhead costs. Direct debits help treasurers with cashflow management by being able to predict more accurately when funds will arrive and having a greater degree of certainty that collections will occur. That will then reduce the number of queries, which is usually one of the most expensive operations for companies. Reducing the number of outstanding queries effectively reduces back office costs. Companies will also be able to further automate reconciliations and the exception handling process.