Throughout the 5 years since SEPA Credit Transfers (SCT) were first launched, we have been exhorted, warned and admonished about the need to migrate to SEPA. Indeed, the nagging has become even more insistent since the end date for SEPA migration was confirmed. Some accepted the exhortations with enthusiasm, while most have prevaricated and hoped that it would go away or the deadline would be extended.

1st February 2014 is set, however, and according to the recent SEPA Readiness Thermometer issued by PricewaterhouseCoopers (PwC), 55% of companies risk non-compliance with SEPA.  SEPA migration may appear daunting but it is now imperative and companies need to act now in order to meet the deadline.  There is help available and there are advantages that extend beyond compliance.

Firstly, what does SEPA migration mean? At its most basic, by 1st February 2014, all companies operating in the Eurozone will need to have converted both domestic and cross-border credit transfers to SCT and SEPA Direct Debits (SDD). Payment messages need to include IBAN (and currently BIC) codes and formatted using XML ISO 20022 formats. The process of setting up and managing direct debit mandates also needs to be adapted to the SDD Core or B2B Schemes.

In theory, SEPA migration is not difficult, except that in most multinational corporations, payments are initiated from multiple points (and usually multiple systems) in the organisation, which then communicate with a variety of banks and banking systems, which use different legacy formats. This inevitably makes conversion more complex. Furthermore, settlement instructions are also stored in various places, in different formats.

But won’t the banks convert settlement instructions and file formats on customers’ behalf? Some major banks will end up providing some sort of conversion service, but at what risk and cost? What happens to companies with more than one banking partner?

Compliance risk is a core responsibility for treasurers and finance managers and SEPA migration is no different. What would the financial and reputational impact be if essential payments such as tax, dividends, key supplier payments or salaries were to fail? What about collections? If suppliers have not migrated to SEPA in time, collections will be delayed, impacting on the company’s ability to fulfil its financial obligations. According to research published by Experian, each failed payment could cost €50, resulting in wholly avoidable costs of up to €20bn across the Eurozone. This excludes penalties and interest costs for late payment or additional borrowing.

However, there is help available. According to the PwC research referred to earlier, lack of system-readiness is a major concern for 92% of companies. Companies should look for a solution provider that can help meet all aspects of the SEPA regulations.  In meeting those regulations, companies should look to focus not on the technical conversion issues, but on refining and enhancing processes instead. SEPA is not simply a regulatory issue, it is also an opportunity to streamline, harmonise and enhance payments, collections and cash management with a payment factory. The earlier companies migrate, the earlier they can focus on delivering value as opposed to compliance. 

Have you started your SEPA migration project yet? I'd like to hear from you.