The single euro payments area (SEPA) has become a compulsory initiative for corporates operating across Europe, and the end date for SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD) migration has now been set for 1 February 2014. The clock is now ticking, although many corporates have yet to prepare for the change.
Corporates should not greet the looming SEPA deadline with dread. The initiative’s aim of unifying payments execution processes across Europe will simplify transactions. Not only will this eliminate the costs by streamlining payments systems, but also eventually expand the payments market – accelerating competition between banks and improving the quality of services available to corporates.
And despite being restricted to euro transactions, the process is not exclusive to the 17 eurozone countries. It affects 32 countries in total, both within and beyond the EU. Corporates in all these participating countries will observe a synchronisation of formats, as well as the introduction of uniform standards and codes for exception processes (typically generated when transactions cannot be completed by banks).
Certainly, for those who are prepared – the benefits are plenty. While complexity is expensive, SEPA offers simplicity. Having a single payments process across Europe reduces the number of bank accounts required, which cuts costs, increases operational efficiency and speeds up settlement times. And this improves cash flow, which – of course – is crucial to commercial success.
SEPA also presents the benefits of centralisation. By gathering together payments and receivables, it stands to increase visibility and control over liquidity – resulting in standardisation, lower costs, and improved efficiency. Of course, it is not difficult to understand corporate reluctance to grasp the opportunity with respect to SEPA’s implementation. While the use of SEPA will reduce costs, converting current systems can, indeed, be expensive. This, mixed with concerns over the euro as a currency, has led to a sluggish response from corporate Europe. Yet they should be eager – rather than reluctant – to adopt SEPA: not least because it is now compulsory. The countdown has commenced, making preparation imperative for everyone – be it a small local company or a large multi national conglomerate.
Getting Ready for a Simpler Future
Determining when to make the migration to SCT and SDD is a vital component of a corporate’s preparation. They must research the environment in which they conduct business – measuring the use of existing operations against their use under the new regulatory requirements. They also need to gauge their client or business partner’s level of interest in SEPA, because effective synchronisation relies on co-ordination across the supply chain. Only when this task is completed can corporates ascertain the right time to make the conversion.
Yet this does not mean corporates can slacken their attention to preparation. With less than two years until the end date, there is no time to waste. They need to start configuring data and adapting systems now. They must also allocate funds for the migration costs in their 2012 budget cycle.
Preparing to Migrate
The next stage is for corporates to analyse their own systems by examining their current formats and plan what will need to be changed. SEPA will simplify payments transactions through ensuring that all corporates use international bank account numbers (IBAN) or bank identifier codes (BIC) to initiate and validate payment instructions.
Yet one specification causing concern is the migration to XML. Although the conversion to SEPA is compulsory, the migration to XML systems is viewed as voluntary. XML files are larger than many current files, and some corporates will find their systems incompatible. Moreover, the migration to XML is costly. Yet many corporates and banks see XML becoming the standard future format for all payments due to the improved structure and wealth of information that can be provided in XML. Such banks are able to facilitate the migration for corporates armed with systems capable of handling the size of the XML files. For corporates who are unable to migrate to XML right away, many banks will be able to continue to accept payments in a domestic format and adjust them to the SEPA required format.
Corporates will need to prepare by also collecting IBANs and BICs. They must start by deciding whether to source them directly or indirectly. Corporates who opt to procure them directly are able to do so through counterparties, and those who choose to do so indirectly can use conversion services. The size of the corporate governs how easily these tools of international identification can be obtained. A smaller company, for instance, will be more capable of collecting the necessary information directly from their clients, whereas a larger company may have to make use of a third party.
Admittedly, in this respect the migration process is complex. Moreover, it should be completed as quickly as possible to avoid having to maintain two sets of data. And this means that a corporate’s best bet – in terms of completing the conversion to SEPA as painlessly and successfully as possible – is via partnering with a bank equipped to ease them through the transformation.
A Helping Hand
Indeed, SEPA is a complex process, and the safest option for any corporate would be to team up with a bank that has been actively involved in its development. While many banks have created initiatives for helping corporates deal with the transition to SEPA, it is best to choose a leading bank from a participating country that is experienced in handling euro transactions and an expert on capitalising on the benefits of SEPA migration.
Certainly, Deutsche Bank recommends early adoption and offers corporates a four pillar strategy of benefits. This includes immediate financial benefits, format flexibility, account flexibility and value-added services.
Amid the economic turmoil of recent months, SEPA migration can seem daunting. Yet, the change is inevitable and denial no longer an option. However, with a helping hand from an experienced bank, corporates can be eased into the process. SEPA brings progress, and through preparation corporates will be set to reap the rewards – making the end date something to welcome, rather than fear.
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