The Single European Payments Area (SEPA) is an EU initiative and its core objective is to create a cohesive internal market for all electronic Euro payments within the SEPA zone (EU 28 plus Iceland, Liechtenstein, Norway, Switzerland and Monaco). This will mean that users of payment services can make and receive Euro payments across all participating countries using common technical standards and common payment instruments, thereby creating a borderless payments area.
The Irish Direct Debit Schemes will be replaced by SEPA Direct Debit Schemes in February 2014 also. Any business that is a direct debit originator faces a bigger challenge as new scheme rules may result in a change to collection processes. The SEPA Direct Debit Core scheme enables Euro collections from both consumers and businesses across the 33 SEPA countries. There is a second Business to Business scheme but both creditor and debtor banks need to be members of the scheme. Users of the new SEPA Direct Debits scheme can continue to collect under existing mandates. There are different rules under the new scheme, the most significant of which is the 8 week refund period for authorised collections. This enhanced consumer right entitles the Creditor to a “no questions asked” refund up to 8 weeks after their account has been debited. This new rule has obvious cash flow and credit implications for organisations which rely on Direct Debits as their preferred payment collection product.
What is going to happen?
From 1 February 2014 we will see the end of national Euro clearing systems across Europe. In Ireland this will mean the end of the EMTS clearing system used by Irish banks for exchanging payments and direct debits. The traditional 6-digit National Sort Code and 8-digit Account Number will no longer be acceptable and must be replaced by the SWIFT BIC and IBAN for electronic payments.
Customers will be required to convert all domestic payee details from National Sort Code and Account Number to BIC and IBAN. The good news is that there is a free conversion tool available from the Irish Payment Service Organisation (www.ipso.ie). This service has the ability to convert bulk payment files also.
So what actions need to be taken over the next seven months in order to be ready for SEPA in time for February 2014?
Convert domestic payee details from National Sort Code and Account Number to BIC and IBAN
Organisations that utilise bulk payment services will only have to produce one payment file across the SEPA zone instead of multiple file formats based on the specific national clearing system requirements of each country.
Engage with your IT provider about updating accounts payable, accounts receivable and enterprise resource planning (AP/AR/ERP) systems to enable the output of SEPA standard file formats
Contact your bank to learn of any actions required to ensure that the business is SEPA ready in good time for 1 February 2014.
For both SEPA Direct Debit and Credit transfer schemes businesses are required to change their file formats to the new ISO 20022 XML Formats.
AIB Corporate Cash Management