From the October Special Report issue of Treasury & Risk magazine

Ready, Set, SEPA

With the February deadline for the Single Euro Payments Area just months away, will companies comply in time to keep payments flowing?

The start of a new European payment regime, the Single Euro Payments Area, is just months away. Effective Feb. 1, 2014, SEPA will transform the way businesses make payments in 33 European countries. Yet many companies have yet to switch, raising the possibility of a traffic jam toward year-end as large numbers of corporates all try to migrate at once.

A PWC survey conducted this summer concluded that about a third of companies risk not making the deadline; as of June, about a quarter of the companies PWC surveyed hadn’t planned their SEPA implementation. European Central Bank data show that as of July, 50% of credit transfers were occurring in the SEPA format and just 4.8% of direct debits.

SEPA’s Challenges

The first issue companies face is coming up with the resources to implement SEPA. There’s general agreement that small and midsize companies are farther behind than large corporates, and Ramsey relates that to the issue of resources. Big corporates not only have more resources to begin with, but will realize more benefits from SEPA, which means the finance team can make a stronger business case for getting the resources to make the switch, he said. A small company that does business in just one country still has to bear the costs, but isn’t really going to realize any efficiencies from switching to SEPA, which makes it harder to put together the case for getting the resources, Ramsey said.

In the past, corporate clients might have wanted to own their payment process and been reluctant to outsource, said Dub Newman, head of North American transaction services at Bank of America Merrill Lynch. “But in the last several years as they’ve tightened up expenses in their technology and operating areas, very large clients have become open to looking to their banks to handle a large number of things they previously would have done themselves,” Newman said, citing mandate management as an example.

Citi’s Sinha said companies should make sure they’ve provided their banking information to their customers. “So from a receivables standpoint, there shouldn’t be a situation where their customers aren’t able to pay them and they’ve got a working capital situation as well,” he said.

Benefits Down the Road

Adhering to a single standard for payments throughout Europe involves considerable effort and expense for companies. But it’s also been touted as an effort that will deliver considerable benefits to corporates down the line as the single market for euro payments paves the way for efficiencies and cost savings.

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