By Joseph Neu
A look back at Citi’s offerings in the summer of 1996.
Considering mass collection woes continuing under SEPA (see “Sending the Remittance Advice Separately”), we looked at solutions offered by Citi in our July 22, 1996 issue of International Treasurer, detailing the interfaces and workarounds required pre-SEPA. For Citi at the time, this was part of a shift in focus from mere transaction processing services to providing end-to-end transaction solutions that integrated treasury with commercial AP and AR. This trend of evolving treasury center structures to include centralized payment and collection “factories” and crossing over into Shared Service Centers also continues.
INTERNATIONAL MASS PAYMENT
Without universal standards, the key to providing an automated electronic interface is found in a bank’s capability to process a single file containing check, wire transfer, and ACH-type payment instructions.
At the time, Citi offered an International Mass Payment (IMP) service. With IMP, Citi used proprietary standards to format the information—making up for the fact that there was no single European standard for each payment type. With corporates increasingly making use of standards based on EDIFACT and related international EDI standards, which Citi was among the first global banks to support, the task got easier.
Still for such an integrated service to work, the customer had to be able to generate from the accounting package a pre-formatted file with instructions containing a “reasonable” degree of payment data.
“In practical terms, this means setting up fields in your accounting system’s 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 disbursement file to transmit via Citibanking whenever its client runs accounts payable.”
FOCUS ON THE COLLECTIONS SIDE
Then as now the greater challenge was on improving the collections side. Here again, Citi used a proprietary approach to collect the relevant information from the variety of payment methods used across Europe and provided customers a file to update their AR systems. As with the AP side, as more companies moved to payments using standardized EDI formats the task of providing a single collections interface would get easier.
This proceeded back then on a sector basis. For example, Citi described success working with clients in certain industries (e.g., telecommunications) to repackage their business offerings to facilitate EDI-enabled centralized collections.
Further as Chris Robinson, then solutions manager for Citi’s global cash management services group in London noted:
“The ‘state-of-the-art’ [at that time] is using direct debit to directly debit out payments from the A/R system”… For example, Citibank will take the EDI direct debit instructions in the standard DIRDEB EDI-format directly from the A/R system, translate this into the local ACH format to debit the customer’s account, and then provide a single file of the rejected items to the supplier. The suppler can automatically reconcile 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.”
It is probably equally true today that full automation will not work for everyone. However, over time, the standardization of payment formats will make international payment/collections interfaces available to an increasingly wide array of companies—and without having to rely on proprietary bank solutions. Mandates like SEPA can help this along, but they also mean all these companies need to help pay for such service.