SEPA: Standardise, Re-engineer and Rationalise Your Treasury

Citi SEPA graphic

The long-gestating single euro payments area (SEPA) project is becoming
a reality as the 1 February 2014 migration end date approaches. Prior to SEPA,
domestic payments and collections necessitated accounts to be held within the
country of payment, while payments were executed in accordance with national
rules, standards and timeframes. For the organisations receiving and initiating
payments, these requirements led to local bank accounts, duplicate processes and
varying technical configurations, in addition to general inefficiency and cost.

SEPA enables clients to hold an account in any SEPA country, from
which payments can be made to, and collections received from, the 32 SEPA
countries. As a result clients will, in future, hold fewer euro accounts within
the SEPA region. To ensure that these efficiencies are achieved in full,
organisations will need to assess their existing account profiles and consider a
number of implications, including reconciliation and control, central bank
reporting, and possible legal and tax implications. This reduction in accounts
will in turn help support liquidity optimisation, improve working capital for
treasurers and aid centralisation efforts.

On the payments side, SEPA
is enabling the standardisation of payables set-up and processing. National
automated clearing house (ACH) payments are being replaced by SEPA credit
transfers (SCTs), thus creating for organisations a single payment mechanism
across 32 countries for euro payments, eliminating many local country rules,
enabling a single payment type to be used and facilitating the remittance of
additional payment information. Those using SCTs today are benefiting from very
high rates of straight-through processing (STP) as the schemes have been
designed on this basis. The main organisational payment flows, of vendor,
payroll and tax, are each migrating at their own pace to SEPA. By 1 February
2014, all these flows will be processed via SEPA and clients will be able to
benefit from consistency in processing across their organisational flows, via
either SCTs or SEPA direct debit (SDD) payments.

SEPA presents an
even greater opportunity for organisations to reconfigure their collections
activities across the region. Historically, to facilitate incoming payments from
customers, collections accounts have been predominately held in-country.
National direct debit schemes have significant variances in rules and refund
rights, mandate processes and value dates. As a result, accounts receivable
(A/R) processes are less often centralised into shared service centres (SSCs),
and less standardised than accounts payable (A/P) activities.

The
SDD scheme offers an opportunity to standardise all euro direct debit activity,
replacing the multiple standards and rules with a consistent approach that
enables euro collections across the 32 SEPA countries. The possibility of
collecting into one single account has been facilitated by SEPA. However, again,
some challenges to this remain before this will become a common practice.

Element of Choice

With two SEPA direct debit
schemes, organisations can choose between:

  • A core scheme (mandatory
    for banks to offer, and providing debtors with refund rights up to eight
    weeks).
  • A business-to-business (B2B) scheme (optional for banks, and
    debtors to waive their refund rights).

While adoption of SDDs has
been low to date, recent legislation ensuring the validity of existing mandates
for migration to the SEPA core scheme, alongside the 2014 migration end date has
brought increased focus to this area. Companies should be aware that migration
to the SDD requires more than just bank identifier code (BIC) and international
bank account number (IBAN) collection. Ensuring each mandate is assigned a
unique mandate reference number and changes to payments systems to facilitate
new collection cycles are also required. Furthermore, under SEPA, creditors have
full responsibility for maintaining direct debit mandates. Therefore, depending
on the volumes involved and the complexity of existing setups, some clients may
consider outsourcing the migration of direct debits and/or on-going migration
management.

For organisations that operate decentralised payments and
collections structures, SEPA inherently offers a greater opportunity to
rationalise, standardise and centralise. However, centralised organisations can
also gain process efficiency benefits and seek further optimisation through
account rationalisation and the use of the new data fields contained in SEPA
messages. SEPA messages contain new fields that help facilitate payments on
behalf of/receivables on behalf of (POBO/ROBO) activities and the transfer of
additional information to beneficiaries. Organisations should assess, for
payments and collections, how they can utilise these new fields to increase
reconciliation and support in-house bank activities.

With these
opportunities in mind, organisations also need to be aware of the current state
of country market readiness. While 1 February 2014 is the set end date for all
euro member countries to migrate to SEPA standards, certain national bodies,
such as in the Netherlands, require sections of their communities to migrate in
advance of the legislative end date. Alongside this, the national market
readiness to process all types of payments, certain local legislation and the
use of local payment instruments, such as cheques and cash, may place some
restrictions on the level of account rationalisation. However, these challenges
should lessen over time.

SEPA is bringing significant change and will
have an impact on the payments and collections activities of organisations in
both the short and the medium term. Rather than having a tactical view of the
SEPA deadline, corporates can view this requirement as an opportunity to further
rationalise their cash management and banking infrastructure. Understanding the
SEPA schemes, and the opportunities that are available for your organisation, is
key to determining how to approach SEPA.

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