The benefits of the Direct Debit Schemes for the business customer
"Although the migration to is a challenge for a large company like ours we do believe that the long term benefits of a harmonised payment market outweigh the short term efforts to get there".
Building a payment scheme can be compared to designing a car model: it is important that the basic model meets key market requirements. At the same time, the model must include options to add extras on demand. This concept provides maximum choice to customers and, in consequence, the Direct Debit Schemes (SDD) developed by the in close dialogue with the customer community build on this concept.
The roll-out of SDD services is a key element of the integrated euro payments market considering that the direct debit is a major payment instrument widely used in many euro area countries. It is for the benefit of the economy as such if invoices are paid when they are due. The SDD schemes allow billers to collect payments on the exact date when payments are due thus ensuring reliable cash-flow for businesses of all sizes.
In addition, the SDD Schemes allow business - for the first time ever - to collect payment using a standardised payment instrument within and across the 32 countries that make up ; e.g. the 27 Member States, Iceland, Liechtenstein, Norway, Switzerland and Monaco.
"The 2005 redesign of our Western European cash management structure already anticipated the new environment and was built to leverage its benefits at an early stage. By now we are seamlessly using Credit Transfers across Western Europe and are preparing for the Direct Debits to also benefit from harmonised standards and streamlined processes for our collections".
Specifically, upgrading the existing payment architecture in a company to be compatible with the schemes in general and the Direct Debit in particular generates the following benefits:
Have innovative products custom-tailored for you
The Schemes introduce a variety of innovative features streamlining payment processing at any company, regardless of whether business is being done domestically or cross-border. The Schemes recognise that individual banks and communities of banks will provide complementary services based on the schemes in order to meet specific customer needs.
Optimise cash management
Companies maintaining accounts in other European countries to handle local payments are able to centralise such accounts and the associated liquidity. Current differences between domestic and cross-border payments in will be eliminated.
Decrease IT costs
The introduction of the ISO 20022 message standards - the data formats - allows for rationalisation, which in turn reduces the costs associated today with the maintenance of different national payment formats and related IT-standards.
Streamline the back office
Uniform settlement periods and exception processes for all European countries replace current complexities. The EU Payment Services Directive (PSD) further improves legal certainty and predictability in payments.
Reconciliation of payables and receivables is a time-consuming and costly process. The data formats based on the global ISO 20022 message standards streamline account reconciliation.
The e-mandate: dematerialised process improves internal control
The Direct Debit Schemes include the option to dematerialise the mandate process, e.g. to create electronic instead of paper-based mandates1. The e-mandate feature makes it possible to automatically check the availability of a valid mandate throughout the entire processing cycle further limiting the risk of erroneous payments and, in consequence, reducing the number of rejected or returned transactions. The e-mandate solution is an optional service offered by payments services providers; i.e. it is not a mandatory part of the SDD Schemes. A proof of concept for e-mandates is scheduled for 2010.
Do business everywhere in
The existence of a multitude of different national payment systems and formats posed a significant obstacle to the aspirations of companies seeking opportunities in foreign markets. Availability of a standardised payment infrastructure in opens up new possibilities to expand business beyond national borders.
The Business to Business Direct Debit: optimise the supply chain
"Most countries today do not have a dedicated business-to-business direct debit scheme. closes this gap and provides a useful instrument to facilitate collections between corporates in Europe".
Dr Peter Hasfeld, Head Cash Management Projects, BASF - The Chemical Company
The Business to Business Direct Debit in particular supports the intra-European supply chain management of companies while boosting trade across the internal market. The most important differences between and are:
- In the B2B Scheme, the debtor is not entitled to obtain a refund of an authorised transaction; this provides certainty of payment for the creditor
- The B2B Scheme requires debtor banks to ensure that the collection is authorised by checking the collection against mandate information; debtor banks and debtors are required to agree on the verification to be performed for each direct debit
- A debtor bank cannot offer the scheme to a debtor (payer) who is a "consumer" under the law of the country where that debtor bank is providing the payment service; essentially, therefore, the B2B Scheme is available only to the business community, not private individuals. By the same token, a creditor cannot offer bill payment via the B2B Scheme to a customer who is a consumer.
- Responding to the specific needs of the business community, the B2B Scheme offers a significantly shorter timeline for presenting direct debits and reduces the return period
"The Business-to-Business Direct Debit provides us with the long awaited opportunity to facilitate and accelerate our collections throughout Europe. We will therefore start to pilot this new instrument with selected banks already in November 2009 and hope to achieve wide reachability as fast as possible".
Thorsten Brühl, Head of Treasury, DKV Euro Service
It is expected that already in the ramp-up phase of the SDD Schemes between 1 November 2009, the launch date of the schemes, and 1 November 2010, the date when all banks in the euro area must be reachable for Core Direct Debit as mandated by the EU Regulation on cross-border payments in the Community, a number of pilot projects will be implemented allowing business customers to test the possibilities inherent to the scheme.
The bottom-line for business is this: don't look at implementation as a mere compliance issue. Rather, squeeze the opportunity for all it is worth.
Christian Westerhaus is the Chair of the Payment Schemes Working Group (SPS WG).
- A mandate is completed by a customer authorising a biller to collect payments via direct debit. At the same time, the mandate includes the authorisation of the customer’s bank to pay these collections.
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