Setting Your Business Up For Successful Cross- Border Operations. April 24, 2017

Transcription

1 Setting Your Business Up For Successful Cross- Border Operations April 24,

2 Agenda Key Entities of Cross Border Payments Between Canada & US Five Ways to Streamline Cross Border Operations CBC (Cross Border Company) Treasury Services US and Canada Payment Fraud Practices Questions? Appendix: Session Takeaways Comparison Chart: Legislation Web References 2

3 Cross Border Entities Types of Cross Border Entities Generally, when discussing cross border transaction with corporate entities, it is important to distinguish them between two types: cross border transactors or cross border subsidiaries. These two groups are not mutually exclusive. An organization can be a cross border transactor without having subsidiary relationships. But organizations that have cross border subsidiaries may still be a cross border transactor. Cross Border Transactors Generally, Cross Border Transactors are organizations only have cross border transactions for the purposes of Vendor Payments or Customer Receipts. Transactors are organizations that do not have a subsidiary establishment on the other side of the border, and as such have no need for cross border intra-company money movement. Cross Border Subsidiaries Organizations that have a subsidiary establishment on the other side of the border may still exhibit the same need for cross border Vendor Payments and Customer Receipts, but an additional layer of complexity is the movement of money cross border for the purposes of intracompany transfers. Intra-company money movement can be for the purposes of loans, cash pooling, netting, and foreign exchange hedging. Source: 1 Government of Canada, Office of the Chief Economist, Foreign Affairs, Trade and Development, Canada Annual Trade in Merchandise and Services US Department of Commerce, Bureau of the Census, Foreign Trade Division 3

4 Cross Border Payments Between The US and Canada 412 Number of Canadian and US Cross Border Transactions 1 (millions of transactions) % Commercial cross border spend has been growing at 6.47% CAGR since 2006 (with estimated growth to 2018). However, YoY growth is slowing. YoY growth from 2006 to 2008 was 16.5%. Projected growth from 2016 to 2018 is 9.25%. As supply chains of many North American organizations have matured over the last decade, the pace of growth in Canada-US transactions has slowed. 3 Meanwhile, as organizations look beyond North America for suppliers, cross border spend is increasingly going beyond the Canada-US corridor e2016 e2018 Debit Cards Credit Cards Checks Number of Canadian and US Transactions By Payment Instrument 1 (millions of transactions) Credit Transfers Direct Debits In Canada and the US, credit transfer instruments such as Electronic Funds Transfer (EFT) and Automated Clearing House (ACH) are displacing paper checks. The use of checks has effectively stalled and has not exhibited significant growth since e2016 e2018 Source: 1 Aite Group, Global Business-Initiated Payments: Volume and Trends Note: Figures may not add exactly due to rounding. 4

5 Requirements Of A Cross Border Company US company looking to open a banking relationship in Canada to manage Canadian receivables and payables Small operations and staff in Canada Treasury operations managed by US Headquarters with the below requirements Maintain financial control from the US Easy access to cash management services domiciled in Canada Need to collect and pay in Canadian $ Access up-to-date info on Canadian balances Visibility and control over Canadian finance operations Easy movement of funds between Canada and US 5

6 Five Ways to Streamline Cross Border Operations For businesses on either side of the border looking to expand or improve existing cross-border operations, here are five ways to improve cash flow and working capital and ensure overall business success 6

7 First Find and Implement the most efficient business model for the organization Just because a business chooses to have cross-border operations does not mean that the business must have a brickand-mortar presence on both sides of the border. Instead, an organization may decide to have a network of thirdparty distributors in the country of expansion because these distributors have established infrastructures and sales relationships. More businesses are also choosing to have remote staffers with no official company offices. Lastly, businesses may choose to only sell goods or services across the border while all company operations remain within 7 one country

8 Second Eliminate ambiguity that can cause confusion among staff Leaders within treasury should establish internal processes and standards that can eliminate procedural inconsistencies and inefficiencies caused by ambiguity. For example, even seemingly minor details can impact the business. When looking at purchase orders or invoices, accounts payable and accounts receivable staff may not know which payments, either incoming or outgoing, are in U.S. dollars and which are in Canadian dollars. The easiest way to overcome confusion most often caused by paper-based processes is to move as much as possible to electronic payments. 8

9 Third Ensure protection against fraud on both sides of the border Like payment clearing processes, there are differences that businesses must understand when protecting the organization against fraud. Many cross-border businesses are learning an important lesson: Having chip and PIN-enabled credit cards on both sides of the border greatly reduces the risk of physical card fraud. While this infrastructure exists in Canada, the U.S. is still rolling out compatible cards and POS systems. Chip and signature, or payee name verification, also exists in Canada but is more commonly used in the U.S. 9

10 Fourth Think beyond the movement of money to account for regulatory, legal and cultural differences Differences in the banking landscapes and processes aren t the only challenges that businesses need to overcome. There are other tough questions that must be answered. Is the business ready to serve a market that operates in French, too? Are partnerships in place that can help leaders understand the treasury, tax and legal nuances? Is there enough liquidity and working capital available to cover potential cash needs? 10

11 Fifth Find the right partner to guide you through these challenges To answer all of these concerns and the many others that exist businesses should partner with experts who understand the banking systems and treasury best practices and have expertise in both countries systems. To find the right financial partner, businesses should look for three main things: expertise and advice on cross-border banking and financial management, cross-border tools and solutions and support with regulations, documentation and implementation. 11

12 Cross Border Company (CBC) Treasury Practices 12

13 U. S. Treasury Practices Canadian Treasury Practices CBC Banks Funds Movement Information Capture Currency Multiple major banking relationship plus local banks for payroll as needed (average U.S. company maintains 5 banking relationships) Daily zero balancing to a main concentration account. No funds left in operating accounts overnight Use major banks online platforms or treasury workstation BAI files with balances and details from smaller banks Operating accounts in USD only Multi-currency accounts available to accommodate wire transfers One primary banking relationship Choices (allowing for overnight negative positions): Daily zero balancing Notional pooling (Offset) arrangement Overdraft coverage Bank s online platform. BAI files with balances and details to be delivered to Company (alternatively - primary US bank reporting platform) Operating accounts in both CAD$ and USD$ Sundry foreign currency payments via FX Module in lieu of multi-currency accounts 13

14 Receivables U. S. Treasury Practices Canadian Treasury Practices Remote Deposit Capture Check Deposits Lockboxes EFT/ACH Available in US on both a business and retail basis. Over the counter deposits or bank by mail. May need local depository presence. Float assigned to deposits based upon drawee branch. Lockbox: Used by most major companies due to historical mail and clearing float implications. Ability to include additional payment information (e.g. invoice number) for cash application. Ability to transmit files via internet or telephone. Multiple ACH formats. Available in Canada Nationwide branch network. All items are cleared to the data centre closest to the payee branch and are deemed as presented for payment. Same day value given for CAD$ deposits. (USD$ deposit value may vary by Bank) Lockbox used for higher volumes; bank branches readily available for in-person deposits. Used extensively by US companies with no incountry personnel. No unique identifying information to accompany payment. Remittance information (B2B) via fax or . Interbank-proprietary format, governed by one standard (005) CPA format for bank exchange. Consumer PAD utilized extensively. No EFT Block. EDI North American (ANSI) standards North American (ANSI) standards: Typically established between major trading partners requiring remittance information. Incoming Wire Payments Real time reporting Real time reporting Merchant Services Accepts credit cards and get funds by ACH Accepts credit card payments and receives funds via EFT 14

15 Disbursements U. S. Treasury Practices Canadian Treasury Practices Payroll Cards Payroll Expenses thru EFT Available option (good for employees with no bank account) Employees paid by direct deposit is growing; however, number of employees still require check payment (10%-50% typically within manufacturing, repair & maintenance businesses). Often requires a local bank for a payroll account Not a significantly marketed banking service. Most Canadian employees are paid by direct deposit including hourly workers and management. No local account required. Taxes Tax Pay Module through ACH Tax Pay Module through EFT Online Payments Online Bill Pay for Utilities and sundry expenses Online Bill Pay for Utilities and sundry expenses Purchasing Card/Credit Card Used for Employees expenses and procurement Used for Employees expenses and procurement 15

16 Disbursements U. S. Treasury Practices Canadian Treasury Practices Checks EFT/ACH Check writing progressively declining over last decade, but Small Businesses* account for nearly 50% of paper check use in U.S. Some unique information can be remitted with the payment. The amount of addenda information is dependent upon the type of ACH payment generated (i.e. CCD, CTX, etc.) Issue cheques on Canadian$ and US$ accounts for payments in Canada. (Cash Letter arrangements for US$ cheques negotiated by U.S. beneficiaries) No unique information with payments. EFT format in accordance with CPA Standard 005 precluding addenda information. Payments requiring addenda information need to be EDI. (Note: ACH payments to the U.S. are typically facilitated by Canadian Banks having presence/capabilities in the U.S.) EDI North American (ANSI) standards Typically reserved for major trade agreements between trading partners. North American (ANSI) standards. Outgoing Wire Payments A popular payment method Primarily used for large value payments. Bank web based platforms for wire execution broadly available. 16

17 Disbursements U. S. Treasury Practices Canadian Treasury Practices Control Disbursement Commonly offered banking service Non-existent Account Reconciliation/ Positive Pay and Payee Positive Pay was introduced in U.S. much earlier than Canada and does not differ considerably amongst the banks. Moved faster towards payee name matching as part of the positive pay service. Many Positive Pay options available Partial and full reconciliation available. Keep in mind, that if your supplier deposits your cheque today they will receive value for it today. It will also be charged to your account as of today. However, you will not know until first thing tomorrow morning that it has cleared your account. Positive Payee prevalent in Canada. Cheque fraud on the rise in Canada since implementation of Chip Credit Card. Multiple reconciliation options available. 17

18 U. S. Treasury Practices Canadian Treasury Practices Cash Balances/ Overdrafts Statements Fraud Control More concern over keeping a positive balance without leaving too much cash in the account. Overdrafts not permitted Available on-line on first day of following month; cleared check lists available any time; images of cleared checks available on-line but checks are no longer returned to company Positive Pay/Payee is required on most corporate checking accounts Pay no issue items are returned unless bank is told otherwise ACH debit block available for accounts (other than for payroll or tax payments) Canada overdraft positions permitted (subject to credit approval). Credit overdraft facility covers unexpected overdrafts. Caps typically imposed on interest-earning account balances. On-line real time; cleared cheque lists available on-line or electronically; cleared cheques are returned to company. Positive Pay/Payee is available on all chequing accounts Pay no issue items are typically paid unless bank is told otherwise. ACH debit block is not available in Canada 18

19 CBC: Treasury Management Systems & Services Balances U. S. Treasury Practices Canadian Treasury Practices Daily consolidation of bank account balances Interest on Credit Balances on Business Checking Accounts Typically handled by ZBAs Options are to receive credits towards your bank service fees, earn interest on your business accounts. or a combination of both. In addition you can sweep the account balance to a daily investment account. Interest on Corporate accounts recently allowed with the passage of the Dodd Frank Act ZBA or can be handled by account offset arrangements. Canadian banks can, and will, pay interest on the funds carried in DDA current accounts (in lieu of overnight sweep arrangements to an investment account). Sweep arrangements from DDA to other investment instruments self-initiated. Bank Debit Balances Earnings Credit on Credit Balances Deposit Insurance Fees In the U.S. your bank account cannot be overdrawn, instead a normal credit agreement will allow for an anticipated debit balance in an account to be funded from a loan account. Used to offset account service fees Based on Risk Score. It is common practice for FIs to pass these charges directly to account holders. Common business practice (subject to establishment of credit approved overdraft facility). Non existent in Canada. CDIC insurance capped at $100, on cumulative balances per entity. Fees absorbed by banks as overhead expenses. 19

20 US & Canada Payment Fraud Practices 20

21 Cross Border Entities US Fraud is more significant purely by scale Some suggested best practices Electronic payments Positive Pay / Reverse Positive Pay Payee Name Verification Check Imaging ACH Block & ACH Filters (US) Check Block (US) Note: there are fewer fraud prevention tools in Canada for electronic payments, however less fraud occurs (but Canada has enhanced legal protection) * 2013 AFP Payments Fraud and Control Survey 21

22 Timeframe for Fraud Returned Checks via Clearing United States Canada Altered item 24 hours* 90 days Counterfeit item 24 hours* 24 hours Forged drawer 24 hours* 24 hours Unlimited (CPA) Forged Endorsement 24 hours* Bills of Exchange Act requires drawer to notify drawee bank within 12 months * UCC varies from state to state and timeframes can be negotiated between the client and their bank 22

23 Timeframe for Fraud and Returned ACH/EFT United States Canada Unauthorized B2B PAD, with agreement Unauthorized B2B PAD, without agreement Unauthorized B2C PAD 24 hours 10 days 24 hours 90 days 60 days 90 days 23

24 In Summary Avoid Assuming Don t assume that because you know the services available in the U.S. that you know what will be available in Canada, or vice versa Canadian Bank need to comply with Anti Money Laundering (AML) and Know Your Customer (KYC) policies Know AML and KYC rules in Canada Product Capabilities Partner with the right Bank Have someone at the bank dedicated to your account who is knowledgeable about Canada Understand the fraud prevention tools that are available to you on each side of the border and use them Understand Fraud Prevention Tools Engage Tax Experts Engage your Tax experts to consult on tax implications 24

25 Questions? 25

26 Appendix

27 Comparison Chart: Legislation Legislation United States Canada Central Bank Establishment Federal Reserve Act (1913) Bank of Canada Act (1934) Bank Reserve Requirements Currently 10% (Regulation D, Federal Reserve) ypolicy/reservereq.htm#table1 Non-existent Anti-Fraud/Terrorism Legislation United States Canada Anti-Fraud Legislation Anti-Terrorism Legislation International Money Laundering Abatement and Financial Anti- Terrorism Act USA PATRIOT Act (Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism) of 2001 Proceeds of Crime (Money Laundering) and Terrorist Financing Act Proceeds of Crime (Money Laundering) and Terrorist Financing Act 27

28 Web References - US U.S. Federal Reserve System U.S. Department of Treasury U.S. Federal Deposit Insurance Corporation Credit Union National Association The Office of the Comptroller of the Currency U.S. Treasury - Office of Foreign Assets Control U.S. Legislation Federal Reserve Act Riegle-Neal Interstate Banking and Branching Efficiency Act Depository Institutions Deregulation and Monetary Control Act Gramm-Leach Bliley Act American Bankers Association Independent Community Bankers of America NACHA - Electronic Payments Association 28

29 Web References - Canada Bank of Canada Department of Finance Canada Office of the Superintendent of Financial Institutions Canada Canadian Bankers Association Canada Deposit Insurance Corporation Canada Revenue Agency Canadian Payments Association Symcor Intria Canadian Depository for Securities Financial Transactions Reports Analysis Centre of Canada - Money Laundering - Terrorist financing Financial Consumer Agency of Canada Department of Justice Companies Creditors Arrangement Act Statistics Canada Industry Canada 29

30 Web References - Other CHIPS (Clearing House Interbank Payments Systems) SWIFT Best References AFP AFP Canada 30

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