4

Pan-European bank services

Centralized A/P &
A/R Interfaces
A look at Citibanks service offerings for
centralized disbursements and collec-
tions in Europe.
The current focal point of global cash
management may be shifting away from
treasury-related transactions to those
related to remitting and receiving funds.
According to Chris Robinson, solutions
manager for Citibanks global cash man-
agement services group in London, the
Citibank strategy is to move away from
processing transactions toward provid-
ing end-to-end services that integrate
treasury with commercial payment and
collections management.
Banks offer an integrated interface
Many of the efforts Citibank and other
banks are making to integrate commer-
cial payment and collection activities
are facilitated by corporate implementa-
tions of global accounting platforms
(e.g.,Oracle, SAP, JD Edwards). These
platforms allow companies to centralize
and automate payment and collection
activities for multiple subsidiaries (see
also, Pan-European Treasuries, IT,
7/8/96).
The goal for banks is to provide com-
panies implementing such platforms
with a single interface or window into
the banking system and thus position
themselves to help manage the pay-
ments/collections process end-to-end.
In the best case, this window allows a
company making payments to send a
single file to their bank directly from
their A/P application. This single file will
instruct the bank to make payment on
behalf of multiple subsidiaries across
Europe. It will also include all the rele-
vant remittance advice to allow the
bank to forward the information to the
end recipient electronically or by mail.
However, not every MNC has the lux-
ury of having each of its subsidiaries
running on the same accounting system,
much less having them integrated on
anything close to a real-time basis. The
implementation of a global accounting
system is, after all, costly and time
intensive. Some of our customers are in
the midst of four- or five-year roll-outs
of these types of programs, notes Mr.
Robinson.
Thus, Citibank is working to leverage
the banking system to integrate a cus-
tomers various accounting packages
while still providing a centralized inter-
face.
Where multiple packages exist,
Citibank will structure the flow of infor-
mation from cash in and out to pur-
chase to pay, order to cash, and
track the payments made from each par-
ticular entity and provide that informa-
tion back to the centralized location.
Since any information flowing through
any bank account is posted back to one
banking system, it is possible to have
the information sliced multiple ways so
each accounting system can pick up the
information it needs.
You can therefore use the banking
infrastructure to get the information bro-
ken out for each individual sub,
explains Mr. Robinson,so each can use
Citibanking to see what is happening
across bank accounts. Such an inter-
face allows credit control to be done at
the local level, while transaction pro-
cessing is managed centrally for
economies of scale.
Thus, electronic banking interfaces,
such as Citibanking, not only facilitate
monitoring of available balances, but
increasingly their function becomes
breaking out information on payment
flows by individual entity.
Citibank, with its extensive global
branch network, believes it is in a supe-
rior position to provide this information,
because its presence in a significant
number of local clearing centers gives it
greater access to payment information
across countries.
Integrating financial systems via the
banking system is a viable stepping-
stone approach to a single integrated
system. According to Mr. Robinson:
You can collapse the bank account
structure as you integrate your busi-
ness.
Under Citibanks current International
Mass Payment (IMP) service the account
structure can either be built around a
centralized series of multi-currency
accounts in London or accounts main-
tained in each country.
The payment information is transmit-
ted to and from the customer via file
transfer. Alternatively, for lower vol-
umes, customers can use Citibanking or
WorldLink, where the customer wants
to automate the foreign exchange trans-
actions related to its payments.
WorldLink will execute the FX trades
necessary for the payments and provide
the relevant exchange rate information
to the payer, again in a format that can
be uploaded into their accounting pack-
age(s).
International EDI standards
The key to providing an automated
electronic interface is found in a banks
capability to process a single file con-
taining check, wire transfer, and ACH-
type payment instructions. With IMP,
Citibank uses proprietary standards to
format the informationmaking up for
the fact that there is no single European
standard for each payment type.
However, increasingly, corporates are
using standards based on EDIFACT and
related international EDI standards.
Citibank has been among the first
banks to support such EDI standards in
its electronic banking applications. This
means that in addition to making an
increasing number of EDI payments,
customers will also be able to send in
an EDI-enabled way the advice of that
credit to the bank account of the end
beneficiary.
The real benefit will come from multi-
ple payment EDI formats. Citibank is
providing support DIRDEB, a direct
debit format, and PAYEXT, which facili-
tates ACH-type payments.
While progress in these standards con-
tinues, Citibank still supplements exist-
ing standards with proprietary formats to
International Treasurer/July 22, 1996
Global Bank Relations
5
give its customers the kind of connectiv-
ity they need with their systems.
To support its proprietary standards
along with those related to EDIFACT,
Citibank has been working with the
major accounting systems vendors to
continually refine the level of integra-
tion it can provide for customers. It is
important that suppliers begin to work
together before the client implementa-
tion stage, Mr. Robinson notes.
If the bank and the systems vendor can
talk to each other to establish the right
file definitions, protocols and end-to-
end security process, it can then have a
fully-integrated product offering to talk
to customers about.
For an integrated service to work, the
customer must be able to generate from
the accounting package a pre-formatted
file with instructions containing a rea-
sonable degree of payment data. In
practical terms, this means setting up
fields in your accounting systems
payables supplier database, which will
contain the ABA-equivalent bank codes
for all the relevant recipient banks
across Europe. With this information in
place, Citibank can set up an interface
that will automatically generate a dis-
bursement file to transmit via
Citibanking whenever its client runs
accounts payable.
Typically, connectivity is achieved
through a value added network vendor
(e.g. GEIS, IBM Network, and those of
the major Telecoms) rather than a direct
CPU-to-CPU link. Certain types of
postal services (e.g., EDIPOST) are also
used, which facilitate banks taking EDI
messages and putting them into the
mail. After all, this is still how the bulk
of the remittance advice is received.
Citibank is committed to working
within the parameters of its corporate
customers existing VAN relationship.
Security controls are a consideration,
as banks do not want to execute pay-
ments from a file that has passed unse-
cured from the accounting system to
some other systeme.g., treasurys for
authorization purposes before enter-
ing the banking system via Citibanking.
Thus, it is important to determine
issues such as authentication offered for
VAN transmission, where files will be
sent, verification procedures to deter-
mine which user is transmitting, and
which entitlement groups are allowed to
authorize which transactions before you
embark on an accounting platform/elec-
tronic banking integration solution.
Exception processing
Ensuring integrity with the original file is
important in order to eliminate an addi-
tional layer of reconciliation. According
to Mr. Robinson, the new way of han-
dling reconciliation is by exception pro-
cessing, which works like this: Unless
you hear from us, the transaction has
been executed as you instructed when
you sent the file out. All you see back
from the bank is information on rejected
items, e.g. due to insufficient funds or
discrepancies.
Working on an exceptions basis
allows the corporate client to send out
say 1,000 payments and get back 2
returns. The focus of the corporate
finance staff thus shifts from dealing
directly with 1,000 items to just two.
By implementing this type of solution
with a bank, the corporate has effective-
ly outsourced much of its payments pro-
cessing activities in addition to achiev-
ing the economies of scale of centraliza-
tion. The focus on rejected payments
also provides the corporate with useful
feedback to continually refine the quali-
ty of its payment processes.
The collections side
Talk to any corporate, and you are like-
ly to find a keener interest in improving
collections efficiencies rather than pay-
ments. Thus, Citibank is providing a
similar service, in reverse, for interna-
tional mass collections. The collections
service is a much more difficult task
since control of the payment method
and information format lies on the cus-
tomer side.
Here again, Citibank uses a propri-
etary approach to collect the relevant
information from the variety of payment
methods used across Europe and pro-
vide customers a file to update their A/R
systems.
As more companies move to pay-
ments using standardized EDI formats,
however, the task of providing a single
collections interface will get easier.
For example, Citibank has had some
success working with clients in certain
industries (e.g. telecommunications) to
repackage their business offerings to
facilitate EDI-enabled centralized col-
lections.
The state-of-the-art today is using
direct debit to directly debit out pay-
ments from the A/R system, notes Mr.
Robinson. For example, Citibank will
take the EDI direct debit instructions in
the standard DIRDEB EDI-format direct-
ly from the A/R system, translate this
into the local ACH format to debit the
customers account, and then provide a
single file of the rejected items to the
supplier.
The suppler can automatically recon-
cile their A/P items because each one
has a reference number which can be
matched up against the rejected items
returned.
One of our customers has just moved
up to 61% of their receivables across
their European business to direct debit,
notes Mr. Robinson. This type of
automation will not work for everyone.
However, over time, the standardization
of payment formats will make interna-
tional payment/collections interfaces
available to an increasing array of com-
panies willing to pay for the service.
For more information on Citibanks services,
call +44-171-500-5303.
International Treasurer/July 22, 1996
Global Bank Relations
Example: International Mass Payments
Source: Citibank Global Cash Management