Why Treasurers Should Lead the Transformation Journey: Insights from Bruno Mellado
In the ever-evolving world of finance, understanding the currents of change is vital for navigating the future. Today’s guest, Bruno Mellado, Global Head of Payments and Receivables at BNP Paribas, sheds light on these shifts. BNP Paribas, a leading European bank with a vast global presence, is at the forefront of these transformations, providing comprehensive financial solutions and support to individuals, businesses, and institutions.
With his cash management and payments expertise, Bruno offers a unique perspective on the changing dynamics of business-to-business (B2B) payments, real-time payments, invoicing, and the implications of ISO 20022.
This article dives into the latest developments in the payment space, exploring the intricacies of B2B and real-time payments and the impact of technological and regulatory changes on treasurers over recent years. Readers will gain insights into treasurers’ strategies to lead their organizations through these transformations. We also discuss the pivotal role of BNP Paribas in aiding clients in embracing and navigating these changes.
Understanding these elements becomes crucial for treasurers and financial professionals as the financial landscape shifts. This article aims to equip readers with the knowledge and strategies to adapt and thrive in this dynamic environment.
Current Trends in B2B Payments
Business-to-business (B2B) payments are undergoing significant changes, driven largely by the shift towards digital methods. This transition is reshaping how companies conduct transactions, both in terms of scale and complexity.
The Shift to Digital and Its Impact
The trend towards digital payments in B2B transactions mirrors the consumer experience in retail. Digital methods are replacing cash, making transactions more seamless. However, the requirements for B2B payments differ significantly from consumer transactions. While digital wallets and online payments work well for smaller amounts, they become less practical for larger transactions due to limitations like credit limits.
The Role of Procurement and Payment Processes
In a corporate setting, procurement teams are crucial in managing purchasing processes. They often evaluate options, select suppliers, and initiate purchases through procurement systems. However, the payment is handled separately, usually via an Enterprise Resource Planning (ERP) system involving treasurers and other financial officers. This distinction highlights the complexity of digital payments in the B2B sphere, where multiple roles and decision-makers are involved.
Emerging Trends in Digital B2B Transactions
- Rapid Growth of Digital Sales: Digital sales in the B2B sector are increasing rapidly. For instance, France saw a 41% increase in digital sales between 2019 and 2023. Gartner predicts that 80% of B2B purchases will be digital by 2025.
- Comprehensive Digital Experience: Digital B2B payments encompass more than just the transaction. They include receiving and processing invoices digitally and executing payments without manual data entry.
- Industry-Specific Adoption Rates: Adoption rates vary across industries. Some sectors, like those catering to small business owners, are seeing faster growth in digital B2B transactions.
- Complexity in B2B Marketplaces: Companies are expanding their offerings through B2B marketplaces, adding layers of complexity but also creating new opportunities. These marketplaces facilitate the sale of a company’s products alongside complementary products or services from other providers.
Integrating Procurement and Treasury for Efficient Payments
In the evolving world of corporate finance, integrating procurement departments and treasuries is crucial for efficient payment processes. This section explores how companies are navigating this challenge.
Role of Procurement in Payment Decisions
Procurement departments often control certain aspects of payment methods, particularly in card programs and financing terms. However, challenges arise when suppliers do not accept these payment forms, necessitating alternative methods. Procurement’s involvement extends to negotiating payment terms and possibly engaging in activities like invoice factoring.
Data’s Crucial Role
The key to lower cost and efficient payments lies in the data available for these transactions. Procurement, being at the forefront of supplier interactions, is instrumental in acquiring and imposing the necessary data for streamlined payments. This data is vital for Treasury to execute cost-effective and error-free payments.
The Disconnect Between Procurement and Treasury
Despite their interlinked roles, procurement and treasury departments often operate independently, leading to inefficiencies. For instance, both departments embarked on transformation journeys in one case but chose different unique transaction references. This lack of coordination resulted in missed opportunities to leverage shared data for improved supplier experiences and payment processes.
The Trend Toward Digitalization
The trend in corporate finance is moving towards digitalization. However, this shift requires departments to communicate and collaborate more effectively. The digital transformation in payments demands technological upgrades and a cohesive approach between procurement and Treasury.
The transition from B2B to B2C and Vice Versa
Companies that traditionally operated in the B2B space are increasingly exploring direct-to-consumer sales. This transition presents unique challenges and opportunities in payment processing.
Handling Diverse Payment Methods
Businesses selling directly to consumers must accommodate various payment methods, from checks to digital payments. Payment gateways are becoming essential in integrating these varied methods. The complexity of consumer payments is generally higher than in B2B transactions.
Challenges in Invoice Management
For companies transitioning from B2C to B2B, issuing invoices and managing payments becomes a new area of focus. These businesses often have lean teams, making the process of generating invoices, tracking payments, and reconciling accounts challenging.
Case Study: Adapting to New Payment Dynamics
A case in Spain illustrates these challenges. A company in the beauty sector shifted to selling directly to professionals, which brought concerns about managing product risk and payment delays. The solution involved implementing an automatic reconciliation system that updates the ERP with real-time payment information from various methods. This approach allowed the company to have a current view of outstanding payments and make informed decisions about product distribution.
E-Invoicing Regulations and Their Impact on the Treasury
Understanding the evolving landscape of e-invoicing and its implications for treasury departments is vital in today’s business world.
Emergence of E-Invoicing Regulations
E-invoicing, mandatory in many European countries, aims to digitalize invoicing for government purchases and B2B transactions. This change, originating from E.U. regulations in 2014, ensures that electronic invoices contain specific data for VAT declarations, reducing fraud. Countries like Italy, France, and Germany have set deadlines extending to 2026 for full implementation.
The Role of Treasury in E-Invoicing
Traditionally, tax departments handle e-invoicing regulations. However, treasuries play a critical role in this transition. The Treasury is positioned to ensure invoice data integrates seamlessly into ERP systems for efficient payment processing. This integration can lead to significant cost savings and improved efficiency.
Opportunities and Challenges for Treasury
- Data Management: The Treasury can leverage e-invoicing to manage data effectively, ensuring accurate and timely payments.
- Cost Reduction: Digitizing the invoice process can significantly reduce costs, with potential savings of up to 30%.
- Fraud Prevention: E-invoicing can enhance security, ensuring the accuracy of account details and reducing invoice fraud risks.
Strategic Considerations for Businesses
Businesses must consider how e-invoicing affects their entire ecosystem, including suppliers and customers. Large companies might need to support their suppliers in adopting e-invoicing to ensure a smooth transaction process. This support can range from providing tools to facilitating invoice generation in the required format.
Factoring and E-Invoicing: Adapting to New Regulations
In evolving e-invoicing regulations, factoring services and the entire payment and financing chain are undergoing significant changes.
Impact on Factoring Businesses
Factoring, primarily focused on invoice management and purchasing, is directly affected by these new e-invoicing requirements. Factoring companies must adapt their systems to handle electronic invoices efficiently. This adaptation may initially require investment but ultimately leads to cost reduction.
Strategic Planning for Corporations
Corporations face a choice: approach these changes fragmentedly or develop a comprehensive master plan. A unified approach can maximize benefits, simplify processes, and reduce costs. For example, U.S. companies with European operations should avoid multiple, region-specific projects and instead aim for a regional master plan.
Challenges with Differing Timelines
Different implementation timelines across countries pose a challenge. For instance, a French company dealing with German suppliers might face complications if Germany has a later compliance deadline. However, by 2028, all European countries are expected to comply with the regulations.
Global Impact and Varied Adoption
While Europe is moving towards mandatory e-invoicing, other regions like the U.K. and the U.S. show no signs of adopting similar systems. Countries like India, Turkey, Mexico, and Brazil are progressing in this direction, driven by transparency and anti-corruption initiatives. These changes impact both domestic and international trade, requiring businesses to potentially manage parallel invoicing systems.
Solutions for Complex Compliance
Businesses might need to adopt solutions that handle various invoice formats and ensure compliance with country-specific requirements. For instance, BNP Paribas assists its clients by offering a two-step approach: first, a platform that standardizes invoices into the correct format, and second, a partner that ensures compliance with tax regulations of the respective countries. This approach helps manage the complexity and ensures smooth invoice processing across regulatory environments.
Platform Integration and ISO 20022 in Treasury Management
Different European countries use distinct platforms for e-invoicing compliance. For example, France uses Corvus, and Italy has a unique platform. This country-specific approach adds complexity for companies operating across Europe. Considering the varied ERP systems and treasury operations in different countries, a regional strategy is crucial.
Challenges and Opportunities in E-Invoicing Software
Creating and managing an invoicing platform is challenging due to constant regulatory changes and high security and robustness requirements. While numerous invoice software companies exist, partnering with government-certified providers is often necessary. The relationship between invoicing software and accounting systems is also evolving, with decisions about integration and separation affecting corporate architecture.
Role of ISO 20022 in Streamlining Payments
ISO 20022, a major update in the format of international payments, introduces a rich data structure. This change, only occurring every 40 years, significantly impacts treasury departments by enhancing the clarity and detail in payment messages.
Benefits of ISO 20022
- Structured Data: It provides a more organized format, allowing for specific fields like country or city, simplifying the payment process.
- Transparency and Efficiency: The new format improves transparency, aids in better screening and reconciliation of payments, and reduces errors.
Compliance Deadlines
- By November 2025, all banks must be able to send and receive payments in the new ISO 20022 format.
- By November 2026, businesses will be required to incorporate structured data into their payment formats.
Challenges and Opportunities
The shift to ISO 20022 allows for more efficient payment processing and fraud prevention. However, it requires significant adaptation from banks and businesses, demanding strategic planning and coordination across various teams.
Linking ISO 20022 with E-Invoicing
ISO 20022 complements the move towards digital invoicing by ensuring that all necessary payment data aligns with e-invoice formats. This synergy between the two will facilitate smoother transactions and easier reconciliation processes.
Trends and Developments in Real-Time Payments (RTP) and SEPA
Instant payments are increasing globally, with India leading in volume. This growth is attributed to government policies, technological advancements, and behavioural shifts during COVID-19. Spain also exemplifies successful implementation, surpassing 50% in instant payment usage, driven by a unified banking app and efficient clearing systems.
India and Spain as Pioneers
India’s adoption of instant payments has been remarkable due to strong government initiatives, technological proficiency, and the push from COVID-19. Spain’s unified banking app, BIZUM, and advanced clearing system have made it a European leader.
European Commission’s Ambitions
The European Commission aims to make instant payments the new norm, requiring all payment service providers to offer SEPA Instant services. This includes the ability to process payments within 10 seconds and implementing anti-fraud measures.
Challenges and Opportunities
The shift to instant payments faces challenges like fraud prevention. The new regulations propose user-defined limits and enhanced verification processes to mitigate risks. Banks and payment service providers must adapt their systems to pre-validate transactions, ensuring efficiency and compliance.
Impact on Businesses
The predictability of payment processing time is a key benefit for businesses. Instant payments provide more control over cash flow and reduce delays. The new regulations also push for price alignment between SEPA transfers and SEPA Instant transfers, promoting broader adoption.
The 2030 Outlook for Treasurers in Payment and Invoicing Systems
By 2030, treasurers will likely play a central role in shaping the strategies and operations of their companies. This period will involve a significant transformation in how payments and invoicing systems function, integrating more closely with other business functions like sales and procurement.
Key Focus Areas for Treasurers
- Sales Strategy Integration: Treasurers must align closely with sales strategies, exploring new market segments and sales targets. This alignment may include offering short-term financing to boost sales.
- Supplier Relationship Management: Managing supplier relationships, including supplier financing, will become key. This approach ensures a robust and resilient supply chain.
- Increased Predictability and Efficiency: The focus will be on enhancing payment predictability and efficiency, improving working capital management.
- Integration with Technological Advancements: Treasurers must adapt to technological changes, integrating instant payments and digital invoicing into their ERP systems.
Leveraging New Technologies
- Request to Pay Systems: These systems link invoicing and payments, streamlining the payment approval and reconciliation process.
- Instant Payments and API Integration: Integrating instant payment APIs into automated processes will reduce manual intervention in treasury operations.
The Role of Treasurers in Strategic Decision-Making
Treasurers will become key players in making strategic decisions, especially concerning payments and financing options. Their involvement will be crucial in decisions related to ERP upgrades, centralizing operations, and adapting to new payment standards like ISO 20022.
Collaboration Across Departments
The treasury function will increasingly collaborate with other departments, ensuring payment strategies align with broader business objectives. This collaboration will be essential in managing the complexities of the evolving payment landscape.
Practical Steps for Treasurers to Embrace Change
By 2030, treasurers must recognize and prepare for the significant changes in regulations and payment systems. They should embrace these changes not as challenges but as opportunities to be at the forefront of transformation in their organizations.
Steps for Treasurers to Take
- Stay Informed: Use thought leadership resources and participate in forums like treasury boards to understand upcoming regulations and best practices.
- Peer Learning: Engage with peers to share insights and challenges, fostering a collective understanding of the evolving landscape.
- Internal Workshops: Conduct workshops within the treasury department, then extend these to include marketing and procurement teams.
- Strengthen Interdepartmental Communication: Break down silos between Treasury, procurement, and marketing to ensure a cohesive approach to payment strategies.
Building a Business Case for Change
- Highlighting Cost and Efficiency Benefits: Showcase the potential for cost savings and improved efficiency through optimized payment and invoicing processes.
- Regulatory Compliance as a Driver: Use impending regulatory changes as a catalyst to initiate transformation, emphasizing the need for adaptation.
- Presenting a Unified Strategy: Develop a comprehensive plan that aligns with sales targets, supply chain strategies, and new market opportunities.
Collaborating with Marketing and Sales
- Balancing Sales and Payment Efficiency: Work with marketing to integrate seamless payment solutions that don’t impede the sales process but also offer cost-effectiveness and predictability.
- Exploring Financing Options: Investigate how the Treasury can support sales growth through financing options while managing working capital effectively.
- Utilizing Digital Solutions: Partner with fintech or digital payment providers to integrate sophisticated payment solutions that align with the Treasury’s objectives.
Treasurers should position themselves as central figures in navigating these changes, not only within their departments but across the entire organization. By taking a proactive and strategic approach, treasurers can ensure that their companies are well-prepared for the future of payments and invoicing, ultimately leading to more efficient and cost-effective operations.
BNP Paribas’ Role in Supporting Treasurers Through Dynamic Changes
With a substantial presence in Europe, BNP Paribas actively supports corporate clients, particularly in adapting to evolving treasury challenges. Their approach includes:
- Relationship Building: They maintain strong relationships with half of the European corporates, providing support and financing during critical periods like the COVID-19 pandemic.
- Regulatory Insight and Lobbying: BNP Paribas focuses on understanding regulations in detail and influences regulators and software vendors to prepare for these changes.
- Industry Collaboration: They work with entities like SWIFT and European payment facilitators to foster interoperability and reduce friction in payment processes.
- Fintech Integration: The bank integrates fintech solutions into its offerings to enhance user experience in invoicing and dynamic hedging areas.
- Advisory Services: BNP Paribas has established an advisory team to work closely with clients, offering workshops and personalized advice on navigating these changes.
Emphasizing a Proactive Approach
BNP Paribas advocates for treasuries to adopt a project-mode mindset to manage the upcoming changes effectively. This proactive approach is essential for adapting systems and processes per new standards and technologies.
Conclusion
In conclusion, the B2B payments and treasury management landscape is rapidly evolving, driven by digital transformation and regulatory changes. The transition from traditional methods to digital payments, the integration of procurement and Treasury, and the challenges of adapting to new environments like e-invoicing and ISO 20022 are reshaping corporate finance.
Treasurers must actively engage in this transformation by staying informed, collaborating across departments, and leveraging new technologies. They are crucial in strategic decision-making, aligning payment strategies with broader business goals. Embracing changes proactively, treasurers can ensure efficient and cost-effective operations, ultimately contributing to their organization’s success.
As a major player in the financial industry, BNP Paribas supports this transformation through strong client relationships, regulatory insights, industry collaboration, fintech integration, and advisory services. Their approach emphasizes the need for a proactive and strategic mindset in treasury departments, facilitating adaptation to upcoming changes and maximizing opportunities for efficiency and growth.
For treasurers seeking guidance, BNP Paribas offers resources through their relationship managers. They provide services like Cash Management Treasury Board and Cash Management Advisory, facilitating discussions and advice on managing these transformations.
FAQs
What are the key differences between B2B and B2C digital payments?
B2B payments often involve larger transactions, requiring more complex processes and data management than B2C. B2C transactions typically use simpler, consumer-oriented payment methods.
How do digital payments impact the treasury function in organizations?
Digital payments enhance the efficiency of treasury operations by reducing manual data entry and streamlining processes. They require treasurers to adapt strategies for managing digital transactions and data.
Can digital payments reduce operational costs for businesses?
Yes, digital payments can significantly reduce operational costs by automating processes, minimizing errors, and speeding up transaction times.
What is the role of treasurers in managing e-invoicing regulations?
Treasurers ensure seamless integration of e-invoicing systems with ERP platforms for efficient payment processing, aiding in regulatory compliance and cost management.
How does real-time payment (RTP) technology benefit businesses?
RTP offers instant payment processing, improving cash flow management and reducing the time lag in financial transactions, which is crucial for effective liquidity management.
