In December 2010, the European Commission (EC) announced the long-awaited deadlines for the implementation of the single euro payments area (SEPA) regulation. The EC has proposed 12 months from regulation approval date to adopt SEPA Credit Transfers (SCTs), while for SEPA Direct Debits (SDDs) there will be a 24-month time frame for mandatory migration. Given that the European Parliament could approve the draft legislation by the end of 2011, it could be as early as the end of 2012 that mandatory SCTs are in force and the end of 2013 for SDDs.
Certainly, if SEPA is to have the positive impact on European commercial payments in euros that the EC envisages, then the deadlines are needed. Since its introduction over two years ago, SEPA has reached only 10% of eligible euro payments. While the trend should accelerate in 2011, particularly as public sector agencies migrate to SEPA payments, the EC’s original hope that market forces and the positive benefits of SEPA would be enough to ensure its wide-scale adoption has not been realised.
The SEPA regulation aims to bring about benefit to businesses by standardising accounts payable (A/P) and receivable (A/R) processes across Europe, achieving both an easier system for domestic and cross-border payments and significant cost savings. In particular, the EC hopes this easier system of European commercial payments will enable more small businesses to make the leap from being solely domestic entities to trading internationally. The extent to which a business is likely to initially benefit from the new payments system will depend, however, on several elements, including: the scale of its current reach throughout the SEPA region, whether it has a centralised treasury operation and whether it aims for minimal compliance with the new legislation or instead opts for a full-scale overhaul of its payment and treasury processes.
So for treasurers and business leaders now looking at the draft regulation and making decisions about how to implement the systems it proposes, what are the tangible first steps they should be taking to ensure they are SEPA-ready?
It may be beneficial to consider where your business is currently trading and whether your geographical reach means an earlier migration to SEPA payments may be beneficial. While the new deadlines set out the latest dates for compliance once the regulation is passed, they do not preclude earlier migration to SEPA payments. Countries such as Belgium and Finland are already far down the path to full migration, while France and Spain are also at advanced stages of SEPA implementation. In contrast however, SEPA countries outside the eurozone are naturally processing lower levels of euro payments, and so are likely to be granted more time until mandatory SEPA migration.
Businesses must also embrace the use of the International Bank Account Number (IBAN), which is at the crux of all SEPA payments, instead of its domestic equivalent. Businesses that have not already started should now commence gathering the IBANs of all their customers, and also including their own IBAN details on invoices. Some banks, such as HSBC, already provide IBAN conversion services to support customers in this exercise.
SEPA payments also involve various other technical requirements defined in the proposed regulation. For example, for those SEPA payments that are bundled together as a single file for processing, the only acceptable file format will be ISO 20022 XML. While this requirement may need further clarification (HSBC asserts the use of only one file format which may make it more costly for businesses to migrate), businesses should ensure they speak to their bank or payment service provider to ensure they understand the support that is available, as banks including HSBC do provide conversion services to the appropriate file format.
The proposed regulation also requires that SEPA payments will need to be processed without any need for re-keying or manual data intervention. Again, while further clarity is required as the regulation makes its way through to the European Parliament, it can be assumed at this stage that payments will need to be completely correct when submitted. Businesses will therefore need to ensure they not only have systems in place to ensure accuracy but, as payments with slight formatting errors are likely to need to be returned, as opposed to manually repaired, careful monitoring of the progress of payments will also be required.
While the draft regulation will undoubtedly be clarified and amended further as it nears the point of becoming law, businesses that turn their attention now to how the SEPA regulation will affect them, and what it will require, can ensure they are on the front foot with achieving compliance. While the technical requirements and rules to be adhered to may seem complex for businesses, ultimately the implementation of SEPA is designed to make it easier for businesses to operate more efficiently across Europe.
Banks and payment service providers (PSPs) are a valuable source of information and support for businesses making the SEPA migration, and should be a business’ first port of call. By harnessing the support services already available, businesses can ensure they have a realistic roadmap in place for achieving compliance in time with these latest deadlines.
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