By Jonathan Williams, Director of Strategic Development at Experian
The arrival of the Single European Payments Area (SEPA) on February 1st, 2014 will create a unified payments landscape across the Eurozone, with all businesses making or receiving payments in euros obliged to comply with the legislation. This will take the form of ensuring all payments data is in the format outlined within the regulations. While SEPA has been in place for cross-border euro payments since 2008, from February 2014 it will also apply to domestic payments, delivering a common platform and costs for both internal and cross-border payments.
Migrating data to this stage is not a straightforward process, nor is it a swift one, yet despite the SEPA legislation being on the horizon for over ten years since it was set out by EU governments in the Lisbon Agenda, March 2000, many companies have still not undertaken the move toward compliance. The reasons for this can be speculated upon endlessly, but the time for such is over, and the time for action is nigh – simply put, businesses who have not yet begun the move need to do so now to avoid potential financial penalties and a variety of business risks caused by late, or delayed payments.
Penalties for non-compliance are set out at country-level, but unless businesses can demonstrate they have made an effort to comply, or have robust plans in place to catch up if they’re behind schedule, hefty financial penalties could be commonplace. Businesses that think that they can delay starting SEPA migration programmes until tomorrow will inevitably fail to meet the deadline and incur significant penalties.
Perhaps more worrying, however, is the impact on businesses of delayed and late payments to their operational processes. If you consider the elements of a company that are touched by payments, non-compliance is an issue which concerns the whole business. It’s this aspect which is most worrying, since it affects more than just the businesses which have yet to comply. Delayed payments will also have an adverse impact on a company’s suppliers, customers and employees. Businesses that have not begun the process need to act now.
The impact on employees is a major concern. Come February 1st, there may not necessarily be a doomsday scenario akin to that of the millennium bug – systems won’t simply stop working – but banks may refuse payments where the payment information is not in the required format. If employees don’t get paid, they’ll soon let their employer know, as their own direct debits, mortgage payments, utility bills and the like will start bouncing back from their accounts. It’s hard to think of something which might affect morale worse than a company’s workforce waking up to find out it’s not been paid.
Businesses with operations across various territories need to pay heed to this especially – SEPA is intended to smooth out the wrinkles currently found with differing payments models and information requirements in different countries, and as such there may be more data to verify. If a business is to avoid having pockets of disillusioned staff, then every territory needs attention.
Partner businesses may also swiftly become disillusioned if they fail to receive payments – or indeed, if theirs are delayed; their cash flow will be seriously impacted, and if they’ve successfully migrated to SEPA compliance they’re likely to feel aggrieved at the damage this is having on their operations.
Depending on the role these partners play, an inability to process key elements of a supply chain puts a business at a huge risk – a risk which could impact one’s ability to supply customers with goods or services if one is lacking crucial components. The knock-on effect to the business’s reputation is one which no company would want to entertain – in difficult times, customer confidence is key, and once trust is lost, it can take a long time to get it back (along with the custom itself).
A more direct threat to a businesses’ cash flow occurs with the collection of direct debit payments. These payments are initiated by the creditor and they will need to ensure the direct debits contain the correct, SEPA compliant, bank account information and the instructions are delivered in an acceptable format for their bank. With customers, particularly consumers unfamiliar with an IBAN, collecting correct information is not an easy proposition. Additionally a business will need to consider how the direct debit mandates are managed and whether mandate re-signing is required.
Quite simply, SEPA compliance touches every aspect of the business.
So what needs to be done, and how much time is needed? Sadly for those businesses that have still not begun the steps towards migration, it is not simply a matter of flicking a switch and having all the necessary data checked, verified and amended. The company’s payments data will need verifying in the first instance to see where there may be errors, and then these errors will need fixing – by hand mainly, as incorrect or missing bank details are sourced and amended.
External support is available to assist migration, particularly in relation to providing validation of bank account data and conversion to SEPA ready IBAN. While some work can be brought in-house there is no definitive guide to working out how long the migration will take a business. Depending on the size of the company, and its footprint locally and across the Eurozone, this process can take months – and the experience of those companies which have already completed the process puts the estimate at between ten and twelve months. With just nine months to go until the deadline, can any business afford to wait?
Experian is the leading global information services company, providing data and analytical tools to clients around the world. The Group helps businesses to manage credit risk, prevent fraud, target marketing offers and automate decision making. Experian also helps individuals to check their credit report and credit score, and protect against identity theft.
Experian plc is listed on the London Stock Exchange (EXPN) and is a constituent of the FTSE 100 index. The company employs approximately 17,000 people in 44 countries and has its corporate headquarters in Dublin, Ireland, with operational headquarters in Nottingham, UK; California, US; and São Paulo, Brazil.
For more information, visit http://www.experianplc.com
SEPA legislation – overview
The SEPA (single Euro payments area) initiative marks the creation of a zone in which all electronic payments are treated as domestic and with common conditions, thereby removing existing differences between national and pan-European cross-border payments.
Even countries not in the Eurozone are affected, if they deal regularly in Euro payments.
SEPA will see a collective need for International Bank Account Numbers (IBANs) and Bank Identifier Codes (BICs) across the SEPA zone.