Payment and Collection Factories in Times of SEPA

It is official: in 2014, the single euro payments area (SEPA) formats and its related rules and guidelines become binding for payments within the SEPA area. The European Parliament and the European Payments Council (EPC) fixed the migration end date for February 2014. Now that this date has been set, the initiative has become a mandatory step that needs to be taken by everyone. Due to its widespread impact many organisations will have to reconsider processes and systems. This will obviously drive investment in terms of time and costs to ensure full compliance at the beginning of 2014. However, when viewed from a strategic angle SEPA also introduces many opportunities which will soften or even pay back the investment.

Advantages of SEPA for corporates include:

  • International Bank Account Number (IBAN) and Bank Identifier Code (BIC) will be standardised across SEPA. This will make data management easier for corporates.
  • The entire payment process will be streamlined due to well-structured information and complete data in notes to payee and reference fields. Shared service centres (SSCs) will benefit largely from the efficiencies in the cash allocation process.
  • Collections can be performed internationally in a standard format and standard process leading to significant efficiencies for large billers.
  • Standardisation of direct debit (DD) reversal timeframes across Europe will simplify the administration and will be an improvement for a number of European countries.
  • Standardised formats for payment transactions will help to standardise the payments processes.
  • Centralisation and standardisation of bank communication will be facilitated.
  • An exact due date (previously: due on sight) will be introduced.
  • The blocking of unwanted DDs on the basis of amount or frequency of debits will be possible.

In short, SEPA will bring standardisation and introduces a great opportunity for cost reduction for cross-border payments and collections.

Why Payment and Collection Factories are Well-prepared for SEPA

Corporates that have their payments processes set up in payment and collection factories or in SSCs will likely be at the forefront when it comes to preparing for SEPA and implementing the necessary steps in the given time. This is due to the fact that those with a centralised approach to their payments have a good overview of their processes and systems in place and can have a head start for reaping some of the opportunities SEPA is providing. The global overview will be an advantage when looking into the SEPA migration. Moreover, payment and collection factories help to simplify the transition to SEPA, as payments can be split and optimised so that the SEPA payments can be bundled separately from other international payments.

Creating SEPA payments from old formats can be simplified by using the payment optimisation tool of specialised software solutions: local formats are read, and then matched to the corresponding BIC and IBAN. In the end, a SEPA payment is released. This is particularly beneficial when organisations are not making some of their legacy systems SEPA-compliant; the payment factory can in these instances enrich the formats and even add the mandates for SEPA Direct Debit (SDD).

The factories also offer strategic value beyond SEPA, as they enable the standardisation of payment and collection processes. In addition, they usually deploy specialised technology that is integrated in their central enterprise resource planning (ERP) system which eliminates any risk-prone interfaces and simplifies the administration of master data. The latter will be a great advantage when it comes to the conversion of the local bank account details to BIC and IBAN formats. This is not only useful for SEPA, where, in fact, the BIC is only required until 2016, but also for international payments. Thus, migrating to SEPA will support corporates to also streamline their processes for international payments. With standardised and optimised processes, corporates will also improve the visibility into their funding needs and effective liquidity management.

For those corporates who run their payment processes in a decentralised way, SEPA might offer just the right incentive for centralising the financial activities including payments, collections, cash, treasury management and bank communication. Significant efficiency gains and time and cost savings can be realised with a centralised payments and collection platform, as the benefits described above demonstrate.

Getting on the Road to SEPA

But what do corporates have to do as a first step, if they have not already jumped on the SEPA train? First, corporates should evaluate all of their existing financial transactions, processes and systems in order to find out which areas will be impacted. Starting with a well-structured analysis of the current situation followed by a clear description of the target environment, corporates will be able to derive the systematic implementation of the necessary steps identified to reach the end goals. This approach enables corporates to define a structured path towards SEPA compliance coupled, with a business case underlining all the benefits this could bring to organisations.

How Long Does it Take to Become SEPA Ready?

The amount of time required for the full migration to SEPA depends, in fact, on how centralised and standardised a company already is in terms of payments and collections. If standardised and central processes are already in place and first steps have been taken to change the old bank sort codes and account numbers to BIC and IBAN, the transition to SEPA formats can be achieved within a fairly short period of time. If, however, a company has only just started to think about SEPA, it is necessary to speed up to get all processes and systems ready for 2014.

Key Steps for Corporates

Start the SEPA project now with an analysis and assessment of your current situation. Find out what your systems are capable of doing today and which other internal projects might relate to SEPA. Talk to your banks. Fix a date for when you want to have your SEPA migration completed, and turn to your technology providers for advise on how best to ensure a smooth and fast transition in order to stay ahead of competitors.

Some questions to ask your banks:

  • Will the bank be ready to accept local formats even after 1 February 2014?
  • In case you decide to use the SDD Business-to-business (B2B), will the bank be able to process them?
  • Which formats will be used for processing protocols and/or account statements, will the formats change in connection to the payment formats?

Examples of what you need to do about your general ERP system:

  • Master data and updates with regards to SEPA.
  • Conversion to new BICs and IBANs.

Examples of the effects of SEPA for specialised financial software deployed in your company include:

  • Do the customised settings need an update to be compatible with SEPA?
  • Do payment methods change?
  • Tailoring of the XML protocols and testing with the banks.

Conclusion

The SEPA deadline is less than two years away, and corporates should start right now with SEPA migration projects in order to ensure a smooth transition, if they have not already done so. Payment and collection factories are at a significant advantage when it comes to migrating payment and collection processes to the SEPA standard, as they usually have central, interface-free, and optimised processes in place that can be adjusted more quickly than the fragmented processes of decentralised set-ups. Also beyond SEPA, payment and collection factories offer a strategic advantage for globally active corporates, and now is the perfect time for action.

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