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WHY PSD2 HERALDS THE AGE OF INVISIBLE ADMIN

Adam Prince, Vice President Product Management, Compliance & Brexit, Sage

 

In September this year, the European Union’s second Payment Services Directive (PSD2) went live. As far as end-user businesses are concerned, the goal of PSD2 is to drive down the costs of managing bank accounts and payments and enable teams to get on with value-add activities.

 

As the directive opens up banking to greater data sharing, automation and secure interaction, the aim is to move finance into the age of ‘invisible admin’, taking away repetitive, non-valuable tasks so that SMEs can focus on driving the success of their business.

 

In other words, the point of PSD2 is to make finance work for business, rather than the other way around. With that in mind, how will the regulation change working practices – and what do SMEs need to do to ensure they reap the benefits?

 

How can PSD2 help SMEs?

Under the new rules, systems will be developed that help SMEs to get a much clearer view of where their money is moving. Cashflow is widely regarded as the biggest cause of insolvency among SMEs in the UK – the FSB recently noted that ’80-90% of failures in the sector are due to poor cash flow.’

 

As a result, it’s essential that they can track where their money is going and ensure that outstanding invoices are followed up. At present, tracking payment and banking details is a hefty administrative task, which means that it either drains valuable resources out of the business, or worse, ends up being left undone.

 

To address that issue, PSD2 mandates banks to provide APIs (application programme interfaces – essentially sets of interfaces that make it easier for one system to interact with another) to make deeper, automated integration possible. When SMEs’ IT systems can track payments on their own, providing reports on demand to keep the finance team informed, staff can get on with pushing the business forwards rather than chasing up payments.

 

The UK’s Open Banking framework, which runs in parallel to the PSD2 regulation, also mandates that the nine largest banks must provide a single standard of APIs, so that if a company can interface with one institution, it can interface with them all.

 

SWIFT, the global banking standards body, also announced in September 2019 its intention to mandate that all banks implement common standards under ISO20022. This unified approach will reduce the number of technical and economic barriers stopping businesses from operating in the way that works best for them – whether they want to work with a challenger or a high street brand.

 

Security is a priority

This API-driven approach to banking will make life much easier for businesses, but it does come with its risks. Financial data sharing must be done securely or it could cost companies a lot more than admin time. To ensure the required level of security, PSD2 includes a set of Secure Customer Authentication (SCA) rules to ensure that users can be authenticated and that APIs can be accessed securely via common standards. Essentially, this means that SMEs will need to use two-factor authentication to access their data.

 

The UK’s Financial Conduct Authority (FCA) has announced an 18-month migration period or ‘soft landing’ for this part of the regulation to ensure banks and payment service providers have the time they need to comply. So long as there’s a clear plan in place to achieve compliance, no fines will be levied if the APIs and SCA are not yet in place.

 

Interestingly, that need for security in digital banking across the globe can be seen in the difference between the way that the EU and Australia have approached their regulations. PSD2 is based on the premise that payments must be regulated to provide APIs – in other words, that banks need more supervision to ensure quality service. By contrast, Australian regulators are working on the premise that financial data is personal data, and customers should be able to access it free of charge – so banks must provide open APIs to make that access possible.

 

Both approaches end up at the same point from different ends of the scale. In both cases, the customer is at the heart of the regulatory change. As a result, SMEs stand to benefit hugely from increased control over their data and more connected, flexible services – but they must have the right tools in place to access those services.

 

Banking without cloud is no longer an option

If businesses are to get the most out of the new PSD2 regime, there is a clear need for cloud-based software to ensure they can access all the integrations available. If they don’t have the ability to import financial data, they’ll completely miss the benefits. The alternative is to carry on doing everything manually, spending time doing reconciliation by hand, always working on cash flow data that is out of date, missing customers who fail to pay you and making avoidable manual errors.

 

Businesses that work with an experienced financial software provider also stand to benefit from assistance as the industry goes through the final roll-out of PSD2. Most large banks are ready for API integration and secure customer authentication from the September launch date, but some banks are a bit behind the curve, which may cause some businesses functional problems in the short term. It’s essential to work with a partner that can continue to make access to essential financial data available despite these growing pains.

 

PSD2 was developed for the benefit of businesses and individuals across Europe. We live in an era of unprecedented information exchange, and regulations like PSD2 point the way to a more connected, user-friendly, flexible and intelligent way of working. Compliance with PSD2 will ultimately bring a host of benefits so long as the correct security measures are put in place – far from a burden, this is the start of a brave new world.

 

Now is the time for SMEs to move to a cloud-based financial platform – and unlock the full value of open banking.

 

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Finance

HOW TO MANAGE YOUR CASH FLOW IN UNCERTAIN TIMES

CASH FLOW

While the world is constantly changing, probably at a faster pace now than ever before, businesses need to manage cash flow and costs to drive success in uncertain times, says Matthew Thorpe, partner at Haines Watts Essex.

 

Managing people and expenses

There are certain costs that you just can’t avoid as a business – to keep your operation running seamlessly, but scrutinise the detail and cut down on any non-essential expenses. Check things like your SaaS subscriptions and look out for costs that auto-renew and if you do cancel, remember to also cancel your direct debits too.

You might want to put a freeze on hiring new people, but ensure that other roles and responsibilities are clearly and efficiently assigned across your team. The Coronavirus Job Retention Scheme (CJRS) has been introduced by the Government to help UK employers access support to continue paying part of their employees’ salary to avoid redundancies. Affected employees are classed as “furloughed workers”.

Once furloughed, the employee cannot work or they will not qualify for the scheme. For businesses that perhaps need to go further, there may be some roles they don’t need any more, but businesses should work sensitively with people to manage this.

 

Cash is king

In uncertain times, owner managers will need to keep operations going to ensure financial stability. You should look to manage debt more efficiently by negotiating extended payment terms with creditors. You could also renegotiate loans for longer repayment terms to give yourself a lower monthly payment, helping the business to set some cash aside each month.

 

Daily forecasting

As a business owner, you need to create a cash flow projection and update this regularly if you are to improve things. You can do this using financial information to create a picture of how the business will look in the next 12 months. The forecast needs to show revenue sources and expenses, which will show the ups and downs of business income and can be used to make sure that enough finance is in place.

 

Good house-keeping

While banks and other finance providers recognise that the cashflow of a business may be disrupted by the impact of Covid-19, they are still going to want to see that you are viable and continue to trade in these uncertain times. Make sure your business is organised and don’t let disorganisation cause unnecessary issues. You can evidence this by having detailed forecasts; current order books and projections (as best as possible).

Having instantly accessible, accurate financial information allows you to plan effectively, spot issues before they become problems and manage your money in the most efficient and rewarding way.

 

Embrace technology

Software is now incredibly user-friendly and accessible from anywhere. For a business owner embracing the technology, this means:

  • Invoicing can be done instantly when a job is complete, emailed to the customer with an easy to use link to a payment platform.
  • Comparison websites can automatically monitor and help maintain lowest cost for things such as light & heat, insurance etc.
  • Technology can be used in place of face-to-face meetings. It can also enable them to adapt production lines to different demands.

All of these things and more, used properly, can make managing your business finances quicker, easier and often cheaper.  You will also be able to bring clarity to where your business stands and prepare for the next steps.

 

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Finance

HOW FINANCIAL SERVICES CAN GET TO GRIPS WITH RISING SUPPLY CHAIN RISK

FINANCIAL SERVICES

By Alex Saric, smart procurement expert, Ivalua

 

UK businesses have never been more dependent on their suppliers to help them deliver goods and services to their customers. Be it retail, manufacturing or financial services, suppliers have a vital role to play when it comes to innovation and meeting customer expectations. However, as supply chains become increasingly global, businesses are potentially exposing themselves to more risk than ever before.

This is especially true in financial services. Whether it’s the impact of geopolitical events like Brexit or global tariff wars, supply shortages, security or the businesses impact on the environment, an organisation’s failure to identify and mitigate risk could see millions wiped off its share price, and its corporate reputation left in tatters. Risk can present itself anywhere and at any time, so financial services firms must be ready to address it. However, many simply don’t have the ability to evaluate suppliers for risk factors, leaving them wide open to business operations being hindered, or being slapped with financial penalties.

 

More suppliers, increasing risk

One reason why financial services firms aren’t able to evaluate suppliers is the breadth and scale of today’s supply chains. For example, French oil company Total said in in a recent human rights briefing paper that they work with over 150,000 direct suppliers worldwide. This is just one example of how large and varied the roster of partners has become. Research from Ivalua has found that financial services businesses on average are working with around 3,600 suppliers annually, which is evenly split between UK-based and international partners. That number is expected to rise, with 60% expecting the number of suppliers they work with to rise.

The expanding nature of suppliers is only going to expose financial services firms to more potential risk than ever before, yet 78% say they face challenges gaining complete visibility into suppliers and their activities.

A lack of supplier visibility leaves businesses unable to identify and mitigate against supply chain risk. In fact, almost three-quarters (73%) of financial services firms have experienced some type of risk during the last 12 months. These include; supplier failure (43%), environmental impact, such as pollution or waste (35%) and supply shortages (45%). Supply shortages can be among the most damaging to a business, as seen by both the KFC chicken shortage which closed stores, and the summer 2018 CO2 shortage which caused companies such as Heineken and Coca-Cola to pause production, impacting supply across Europe during the World Cup.

 

Businesses unprepared for the worst

One way financial services firms can better prepare for risk is to ensure they know what to plan for to reduce the impact. However, whilst some say they have a contingency plan in place to deal with risk, many of them are unprepared. Financial services firms admitted to not having comprehensive and deployed contingency plans in place to prepare the supply chain for risk such as; natural disasters (68%), supply shortages (67%), geopolitical changes (65%), environmental impact (63%), supplier failure (62%) and modern slavery (50%).

In order to effectively prepare for these types of risks, it’s vital that financial services businesses fully understand their suppliers, their business environment, global variations in regulations, geopolitics, and a host of other factors. But for many, there are multiple challenges when it comes to gaining this understanding. A prevailing factor is an inability to gain visibility into all suppliers and activity because supplier management data is stored in multiple locations and formats, making insights difficult to access. This leaves teams unable to review supplier activity and assess compliance.

 

Making supplier management smarter

It’s imperative that financial services businesses are able to respond or prepare for supply chain risk. Clearly, much more needs to be done to ensure they have complete visibility of suppliers, especially in an era where regulators can levy heavy fines for GDPR breaches and scandals spread in minutes over social media. These types of risks can be reduced in the future if procurement teams have a 360-degree view of suppliers which will help with contingency planning and risk management.

For example, in the instance of supply shortages, plans could be put in place that identify alternative suppliers to ensure any shortages do not impact end users. This type of supplier collaboration is paramount when it comes to managing and mitigating against supplier shortages. When it comes to regulations, financial services firms can’t allow a lack of visibility to limit their ability to ensure all suppliers are compliant.

To do this, teams must take a smarter approach to procurement that gives complete visibility into suppliers throughout the supply chain. This will allow financial services firms to identify and plan for risk, reducing the potential damage, and ensuring they are working with and awarding business to low-risk suppliers. Supply chain risk is rapidly becoming an overarching concern for financial services firms, but by providing the ability to assess suppliers, they will have all the insights they need to mitigate the impact on business operations.

 

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