At the heart of SEPA is the removal of barriers and requirements that previously restricted how euro payments and collections, and hence liquidity management, were conducted across the region. With harmonized legislation and payment schemes, SEPA now provides organizations with the flexibility to operate their cash management activities irrespective of the location of their counterparts, standardize their processes and rationalize activities. While some barriers still remain to complete portability of account location, SEPA can facilitate streamlined cash management and more efficient processes.

Karin Flinspach, Citi Treasury and Trade SolutionsPrior to SEPA, domestic payments and collections necessitated accounts to be held within the country of payment while payments were executed in accordance with national rules, standards and time frames. For organizations receiving and initiating payments, these requirements lead to local bank accounts, duplicate processes, varying technical configurations, general inefficiency and cost. SEPA enables clients to hold an account in any SEPA country from which payments can be made to and collections received from the 32 SEPA countries. As a result, clients will in the future hold fewer euro accounts within the SEPA region. To achieve this, organizations will need to assess their existing account profiles and consider a number of implications, including reconciliation and control, central bank reporting, and possible legal and tax implications. This reduction in accounts will in turn help support liquidity optimization, improve working capital and aid centralisation efforts.

On the payments side, SEPA is enabling the standardization of payables set-up and processing. National ACH payments are being replaced by SEPA Credit Transfers, thus creating for organizations a single payment mechanism across 32 countries for euro payments, eliminating many local country rules, enabling a single payment type to be used and facilitating the remittance of additional payment information. Those using credit transfers today are benefiting from very high rates of STP as the schemes have been designed on this basis. The main organizational payment flows—vendor, payroll and tax—are each migrating at their own pace to SEPA. By February 2014, all these flows will be processed via SEPA and clients will be able to benefit from consistency in processing across their organizational flows through either credit transfers or direct debit payments.

SEPA presents an even greater opportunity for organizations to reconfigure their collections activities across the region. Historically, to facilitate incoming payments from customers, collections accounts have been predominately held in-country. National direct debit schemes have significant variances in rules and refund rights, mandate processes and value dates. As a result, accounts receivable processes are less often centralized into shared service centers and less standardized than accounts payable activities. The SEPA Direct Debit schemes offer an opportunity to standardize all euro direct debit activity replacing the multiple standards and rules with a consistent approach that enables euro collections across the 32 SEPA countries. The possibility of collecting into one single account has been facilitated by SEPA. However, again, some challenges to this remain before this will be a common practice.

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