• sepa


    Steve Dixie, Lloyds Bank - 07 Feb 2012   


    With end dates for legacy payment instruments in sight, what do corporates need to do to prepare themselves for the switchover to single euro payments area (SEPA) instruments?


    Single euro payments area (SEPA) has typically languished on the ‘to do’ list of many UK corporates for years, but we are now reaching the stage where it can firmly be put towards the top of the agenda.


    We have certainly come a long way since December 2003, when the Commission first proposed a new legal framework for SEPA, and the prospect of now putting a SEPA programme firmly into action on the back of regulation is at once exciting, as well as perhaps daunting as treasurers remain very mindful of the challenges to the European and wider economy.


    There is no need for corporates to panic with this migration, though. Most companies are well aware of SEPA, although some implementation projects have been held back for good reason. After several years of turbulent markets, companies in many sectors of the market have prioritised liquidity management, risk management, credit and financing facilities, controlling costs and maintaining revenues rather than embarking on new initiatives.


    Now is a great time to get started on planning for migration to the new instruments in a pragmatic and measured way. With a considered action plan that draws on expert advice as well as feedback from internal stakeholders, companies can feel confident about meeting those deadlines as well as achieving real benefits by improving the efficiency of payment processes.


    SEPA: The Wider Picture 

    Over the past eight years, we have seen both European and global markets open up further. The majority of corporates with revenues over £500m, and many under this threshold, are increasingly operating across borders to some extent, whether that is making payments to European suppliers or receiving payments from trading partners, clients and branches. Any corporate in this position will be affected by SEPA, and furthermore stands to benefit from the harmonisation of processes, mandates and file formats that SEPA Direct Debit (SDD) provides across 32 countries, for example.


    Given how long it has been since the principles of SEPA were first unveiled, there is a danger that the industry has lost sight of the opportunities it can bring. As a first step in the preparation process, it is advisable that corporate treasurers spend time considering this bigger picture, rather than viewing SEPA as a forced migration project or a pure compliance exercise. Typically securing cross-business and key stakeholder buy-in for any large-scale initiative is vital, and by making connections between SEPA and key business objectives, achieving this buy-in becomes much easier.


    There are three specific business factors which are driving the adoption of SEPA, beyond the need to satisfy regulation. Standardising payment instruments will increase efficiency throughout the cash management process, and processes such as SDD enable corporates to rationalise and supports the ongoing drive to centralise their bank accounts. This will in turn help to reduce the cost of transacting across Europe and improve cashflow visibility and management. Furthermore, with standardised formats there is the potential to increase automation and improve reconciliation, reducing the likelihood that errors will creep in and avoiding the time and effort that correcting them entails.


    Taken together, these factors have the potential to create stronger and more efficient businesses, enabling companies to operate more effectively and pursue their plans for growth, which would in turn have a positive effect on the vitality of the UK economy as a whole.


    Migrating to SEPA can also be an opportunity for treasurers to lift the lid on their current cash management processes. The financial crisis highlighted the importance of knowing exactly where cash is held at all times, and being able to access it. Corporates may find that while their existing cash management structures function well, there are alternative ways of operating that may be sleeker, quicker and cheaper.


    The Stepping Stones to Success 

    With these end goals in sight, there are several clear stages corporates will need to go through to prepare themselves for the switchover.


    In the first instance, it is vital to undertake a rigorous analysis of the business’s presence in individual markets across Europe. This will help to construct a profile of accounts receivable (A/R) and accounts payable (A/P) across geographies. Key issues to determine will include what the utilisation of local instruments is on a country, volume and process basis. Such an analysis will enable the treasurer to begin to establish the scale and scope of the migration project.


    This is a step that treasurers can look to their banking partners for assistance with. A corporate’s key relationship bank is likely to have an awareness of the business’s operations and European footprint already, as well as having experience with conducting such deep analysis.


    Once the business has been put under the microscope, gaining the sponsorship of key stakeholders to embark on SEPA migration comes next. There are always a number of competing projects jostling for attention, and steering SEPA migration to the top of this agenda will help treasurers secure the resources they need to achieve success.


    Bank partners can also support treasurers in this respect. They can provide advice on how to educate key stakeholders about the benefits of SEPA and what migration could contribute to the bottom line, and even facilitate such discussions to drive SEPA up the value chain.


    At this stage, it becomes possible to create a SEPA working group, led by a central project manager and formed of representatives from across the business, including group treasury, IT and A/R. This group should then consider holding formal and informal workshops with a wider set of internal stakeholders, in order to understand what the real business impact of the migration process could be. This face-to-face contact with peers and colleagues will also allow the project manager to make the case for migrating and achieve wider buy-in.


    Only when these preparatory steps have been followed can one put in place an implementation plan that is truly tailored to the business’s footprint and needs. While a treasurer could use a vanilla, off-the-shelf template to guide migration, every business is different. For example, three UK-based retailers could all be aiming to improve their liquidity management and achieve full automation in their payment processing. However, they may be starting from different positions, be active in different markets and have different legacy technology in place.


    The implementation plan should aim to build in some early wins and visible milestones. This might be to introduce direct debit, through SDD, in a key country where it is clearly inefficient to operate in-country accounts given high cost and complexity. Early wins such as this can help to create momentum and provide visible evidence of the project’s progress and success to stakeholders. It should also be realistic in its timescales. For example, timelines around data cleansing can often prove challenging. As part of migration, corporates need up to date international bank account numbers (IBANs) and bank indicator codes (BICs) to initiate and validate payment instructions. Obtaining data that is correct and ensuring it is in the right format with no errors can sometimes be time-consuming.


    Moving Beyond SEPA 

    With SEPA migration end-date legislation likely to be in play very shortly, the time to start planning for SEPA migration is now. But that is not to say that this is the end of the story. Corporates who are more advanced in the implementation process will start to see the wider potential, such as its application to electronic invoicing (e-invoicing). This is seen by many as a way to link the supply chain directly to payments, which could streamline processes even further, reducing error rates and costs. Early adopters of SEPA could find themselves the early beneficiaries of such innovations, and could experience the full benefits of a harmonised euro payment area faster than those who are late to the table.


    This article appeared in GT news on 7 February 2012. www.gtnews.com


9/29/2020 12:13:09 AM