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Preparing for the SEPA Deadline of 1 Feb 2014

The 1st February 2014 is the date by which the existing national euro credit transfer and direct debit schemes will be phased out and replaced by the European SEPA alternatives. After this date, rather than using sort code and account numbers to identify bank accounts when making payments, organisations will be required to use the equivalent International Bank Account Number (IBAN) when making credit transfers domestically or making direct debit claims.

Organisations need to begin planning now for their SEPA migration project. Where today organisations pay wages and salaries using sort code and account numbers, after the Feb 2014 deadline they will need to identify payee accounts by their respective IBANs. The same requirement applies to domestic creditor payments. So while many organisations may already be familiar with and be using IBAN information to pay international creditors or trade suppliers, from Feb 2014 the IBAN will be a requirement to make payment to domestic creditors and suppliers.

So domestic payments will require the use of the IBAN but what about receipts? Well, in order to streamline bank reconciliation and to aid in the identification of incoming receipts, organisations should also plan to capture the IBANs for their existing domestic customers as these will arrive tagged with IBAN rather than account number information after Feb 2014.

For those organisations that are direct debit originators, in addition to the need to use IBAN rather than account number on future direct debit claims, there are new rules and obligations under the SEPA direct debit scheme than may have serious implications for an organisation’s cash flow and these need to be understood and catered for in an organisation’s business processes.

These changes, in addition to requiring changes to business processes, may necessitate changes to payments software, ledger systems and banking interfaces. Therefore early engagement with software partners and banking providers will ensure that an organisation can develop a clear roadmap to 2014, can plan strategically for the changes that will be required and not get caught up in a panicked reaction in the months and weeks leading up to February 2014.

So what benefits may accrue from adopting SEPA for domestic payments? Firstly, banks must apply equal charges to comparable cross-border and domestic payments in euro within the EU and the previous transaction limit of €50,000 above which different charges could be applied has been eliminated.

Secondly, organisations may choose to consolidate their banking arrangements as, under SEPA, payments and receipts in euro can be made from/to any account in the EU. Therefore, organisations will no longer be required to have a euro account in a jurisdiction to make/receive payments in that country – all payments and receipts can use a single account held domestically.

Also, where there may be multiple banking interfaces maintained today to support domestic and cross-border payments in euro, from Feb 2014 only a single euro interface will be required.

The above is an overview of the impact of the SEPA migration deadline of Feb 2014 for organisations. There are other changes, such as changes to the structure of the physical payment files and their data contents, which are not covered here.

The key point is that SEPA cannot be ignored. It is not something that an organisation can decide it doesn’t want to adopt – there is no “opt out” clause available. From Feb 2014, if you want to be able to continue to pay salaries and wages, pay trade creditors and other such domestic payees in euro, your organisation needs to implement changes to support SEPA payments.

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