Cash Management article

In 2012, DNB experienced a strong demand for information about ISO20022 XML file format, SEPA readiness and counterparty risk. We predict that this trend will continue with increased force and that Europe will set the agenda for cash management in 2013. This is mainly in light of the IT development for XML conversions, commercial adjustments needed to reap the benefits from SEPA, and, last but not least, the ongoing risk elements of European payments.

What is ISO20022 XML and why is everyone talking about it?
ISO 20022 is a consolidation of XML message formats; rather like a recipe from the International Organisation for Standarization (ISO) to develop a message standard for the financial industry.

The EU has decided that ordinary payments and direct debit within the eurozone will be migrated into a common infrastructure (SEPA) by 1 February 2014, also known as the SEPA End Date. As of this date, all payments within Europe will have to use the international account number IBAN for domestic as well as for cross-border payments, and any files including Euro payments debited from an account within the eurozone will have to be submitted in ISO 20022 XML format. Banks and other market participants will still be able to offer file conversions from other formats provided that this is offered as a separate service and the conversion is completed prior to the bank receiving the file. The same practice will be introduced for Euro payments outside the eurozone (within the EEA) from 31 October 2016, although the details are still uncertain.

As it is not yet fully determined what XML and SEPA will mean in practice, both for you as a client, and for banks, this is a hot topic for debate. Given that no conclusions were reached in 2012, there is reason to believe that the topic will remain high on the cash management agenda for 2013.

European Crisis – considered your counterparty risks lately?
The majority of Norwegian export is destined for Europe (c.f. Statistics Norway) and with the ongoing crisis on the continent there are many risk factors that export industries should consider with respect to managing their liquidity.

According to the European Payment Index 2012 (issued by Intrium Justitia), there is an increasing number of European companies facing liquidity management challenges as a result of payment difficulties among private and corporate companies. If European companies experience challenges with their outstanding customer payments, this will, in the long run, negatively affect their own payment ability. According to the Index survey, outstanding payments in 2011 amounted to some EUR340 billion!

Important considerations for exporters
As an exporter, you should ask: Am I certain that my long-cstanding and, until now, reliable customers will not be affected by the liquidity challenges facing European companies? And if they are, will my invoices be prioritised? If days sales outstanding (DSO) from my European customers increase, what will be the cost for my company? Can I afford to wait for payments or am I unsure if any payments will be made at all?

Remember that your bank can assist by offering various risk mitigation solutions to facilitate more predictable liquidity management. The price of credit will remain relatively high and be less available than before the financial crisis. Consequently, the cost of being short of liquidity can be potentially quite high when your supplier payments are due.

In order to be better positioned to meet our clients’ changing requirements related to working capital solutions, we have made a few changes within DNB, and the Cash Management and Trade Finance departments are now part of the same division. This reorganisation enables us to provide improved advice and total solutions for optimal working capital and liquidity management for our corporate clients with international exposure.

We are looking forward to facing new opportunities and challenges together with our customers in 2013!

Please do not hesitate to contact us for further information or book a meeting with us.