APIs are not simply parts of a source code that allow communication between two applications. They also offer new ways of simplifying processes, saving costs and enriching business information.
The cash flow department is one which stands to gain the most from using all the potential of financial APIs, making the already close relationship with the banks even more efficient. In fact, these financial APIs can be integrated with Enterprise Resource Planning (ERP), i.e. the business management and planning system, to improve, optimize and accelerate all operations in this area.
Cash flow in real time
Currently, communication between the ERPs of companies and banks occurs through peer to peer (P2P) interfaces, usually through SWIFT channels. In other words, the bank sends all the company’s account information through files that have a certain standardized structure.
In Spain, this structure is defined by the Spanish Banking Association (AEB) and is known as AEB 43 or simply Standard 43, the current market standard in Spain. Internationally, there is another standard known as MT940, which is generally used in communication with foreign banks.
The process is executed by sending files—from the bank to the company’s ERP— that contain the statement with the transactions of one or more bank accounts and one or more days. These files communicate with the ERP through interfaces prepared for this communication, and an application collects and integrates all this information when it is received in the systems, usually once a day.
An API such as BBVA Business Accounts goes one step further, automatically integrating the statement associated with the bank accounts into your company’s systems in real time, and in the standard AEB 43 market format. This way, the cash flow departments will have an up-to-date picture of the company’s real situation for taking better business decisions.
This integration is also an excellent way of carrying out bank reconciliation, the cash process through which the information in the company’s bank account is compared with the data recorded in the company’s account through ERP. In this way, you can find errors, identify unforeseen commissions and fees, or confirm whether specific payments or receipts have been paid or credited to your account instead of the wrong account
Faster execution of payments and collections
Just as when ERP retrieves the entire statement of a given company’s bank accounts, collections and payments are also executed via P2P interfaces between the bank and the company over SWIFT networks. Typically, when an employee makes a payment to a supplier, he issues a file that communicates with the bank to execute that payment according to the chosen means of payment (bank transfer, check, reverse factoring, discount, etc.).
This process is not instantaneous, although it is usually fast. The company issues the payment and generates the corresponding file through its ERP, and sends it through the corresponding SWIFT channel. Since the entry into force of the SEPA Single Payments Zone, bank details are standardized in XML format. The bank, once it has received the file with that information, processes it, notifies the company if there are any errors through a confirmation file known as ACK (Acknowledge, which confirms the processing of the file) and executes the payment in the corresponding format.
APIs optimize this process, allowing real-time payment. And given that the banking information of the accounts is already available in the system, the process also makes bank reconciliation instantaneous, making cash flow more efficient and helping to prevent fraud with much more powerful information.
Currency exchange management
On top of all the risks involved in internationalization, companies have to deal with an important additional factor if they export outside the eurozone: managing the currency exchange rate. From the time the transaction takes place and the corresponding invoice is issued until it is paid, a fairly long period of time may elapse during which the exchange rate may vary substantially, possibly causing losses in the transaction.
That is why many companies hedge the exchange rate through specific banking products, which can be provided through APIs integrated with the customer’s ERP to receive up-to-date information on the company’s exposure to a particular currency.
Once this information has been collected, the APIs allow us to fully automate the currency risk hedging strategy and cash flow management processes, from the monitoring of that risk to the execution of the micro hedging. We can also sort payments and centralize accounting processes through a single platform, minimizing human interaction —and, consequently, the possible errors involved—and making sure we have the conditions that are best suited for each situation.
This way, the companies’ cash flow department could easily add new currencies to access new international markets, improve the results with the insured margins and without the uncertainty of the exchange risk and, in general, have less volatility in their results.
In short, banking APIs are an excellent means of integrating bank information with each company’s ERP, which also improve business results by reducing application development costs, streamlining processes and getting information when and where it is needed.