UK companies supplying businesses based in the Eurozone risk losing customers if they cannot receive payments using the Single European Payments Area (Sepa) standard.
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1 February 2014 is the deadline for any business operating in the Eurozone to be able to make and take payments using the Sepa International Bank Account Numbers (Ibans) and the ISO2022 XML format. This includes the Eurozone operations of any UK company. The European Commission (EC) recently extended the deadline with a six-month grace period and 1 August 2014 is now the date when businesses must be compliant with the standard.
UK companies that deal with companies in the Eurozone but do not have operations there have another two years to achieve Sepa compliance. Businesses that are not compliant will not be able to make or take euro payments after the deadlines.
And UK businesses that do not have European operations but do have Eurozone customers might lose out, if they cannot process Sepa payments.
Lionel Jouve, head of financing and treasury at French luxury goods retailer Printemps, said the company has suppliers in the UK and the way they deal with them will have to change. He said UK businesses that do not become Sepa-compliant risk losing business.
“We normally send pounds and euros on the same account but that will not be possible.”
“We have to pay the supplier in euros and pounds separately. My engineer has to deal with two files.”
Read more on Sepa compliance
He said that if a Eurozone business must make the choice between a Sepa-compliant supplier and a non-compliant supplier, they would prefer the compliant supplier.
But the standard means making cross-border payments in the Eurozone will be the same as making them wholly within a country. In 2008 the EC found conducted a study that found substantial financial benefits. "Potential benefits from Sepa, in payments markets alone, could exceed £91bn over the next six years, and a further £177bn if Sepa can be used as a platform for electronic invoicing," said the EC.
Sepa compliance requirements
Becoming Sepa-compliant involves ensuring business systems – including HR, payroll and finance – can read the XML standard. This means all stages of the payment process needs to be compliant. Data capture, business processing, payment initiation, report processing and exception handling all need to meet the format.
Jonathan Williams, director of payment strategy at Experian, said businesses and governments have welcomed the six-month transition window, but it should only be viewed as a grace period. “Banks and payment service providers are ready to go and keen to turn off the old domestic systems," Williams said.
"The EC has stated there will be no further extension to the deadline; you should therefore ensure that you comply by 1 August or your mission-critical payments will fail.”
Different levels of preparedness
Large European businesses are well on their journeys to compliance, with large compliance teams backed up by internal IT resources. But mid-market companies, which often rely heavily on pan-European trade, is not so well prepared.
Research of 600 companies across Europe, carried out by Vanson Bourne for accountancy software maker Sage, found over half of mid-market businesses that need to be Sepa-compliant did not even know when the deadline is.
The research revealed that, of the 83% that claimed to know when the deadline is, only 63% of those organisations actually did. This means over half of the overall sample (52%) did not know the deadline.
Furthermore, 49% of businesses do not have a complete Sepa compliance plan in place, despite the fact that 81% have appointed a dedicated employee to manage Sepa migration. Only 15% of businesses can already make Sepa transactions, found the research.
Part of the delay in Sepa compliance among European companies stems from the fact that most see it as a constraint, rather than an advantage. For example, only a third of the companies surveyed understood how Sepa can improve the payments process.
Recent European Central Bank figures revealed an acceleration of the number of businesses becoming Sepa compliant. Figures for December show that 74% of businesses are now compliant with the Sepa credit transfer regulation, compared with 64% a month earlier. Direct debit compliance was only 41% in December, but this was a significant increase on November when only 26% of companies were compliant.
Buying compliance off the shelf
Businesses must ensure enterprise resource planning (ERP) systems can comply with Sepa. Many mid-market companies have turned to software suppliers to give them Sepa-compliance off-the-shelf.
Christophe Letellier, CEO of Mid-Market Europe at Sage, said: “We currently have hundreds of businesses using our Sepa compliance platform, but this could become thousands over the coming months.”
Letellier said businesses that have yet to start their Sepa journeys should prioritise compliance, with the CEO, CFO and CIO all involved. He added that software as a service is compelling for mid-sized firms without the in-house resources to support Sepa migration.
Lionel Jouve, at Printemps, said Sepa is not just about compliance but what the future could bring.
“We have customers that are very sensitive to IT progress. It is in our strategy to be compliant but at the same time it could change payments in the future,” said Jouve.
He said the company wants a single payments process for customers wherever they are, adding that the process can reduce the risk of fraud.
A standard platform for payments is also attractive to improve processes and reduce costs. “All this technology costs money and we want a standard system rather than separate systems from all ten of our banks,” said Jouve.
He predicted a rush as organisations hurriedly buy SaaS platforms to meet compliance requirements.
“I think it will be a good six months for suppliers selling SaaS platforms for Sepa compliance,” said Jouve.