SEPA 2014 Compliance: Waiting is Not an Option for US Corporations
The new European payments and collections regime requires all euro next day payments and collections to flow through the single euro payments area (SEPA), an integrated European automated clearing house (ACH) system designed to make sending and receiving euro payments more efficient. The legislation has important implications for US multinational corporations that use one or more of today’s in-country localised ACH systems in 17 euro countries.
What is SEPA?
SEPA was launched in 2008 to make payments in Europe faster, more reliable and more efficient. It standardises all next day euro payments around a single, all-electronic, straight-through processing (STP) system. As a result, the new SEPA migration end-date regulation decommissions the 17 existing national payment systems and creates a single, European-wide ACH system for euro transfers.
In February 2012 the European Parliament (EP) and the European Commission (EC) set the date of full compliance as 1 February 2014, after which banks will no longer transfer non-compliant euro payments to the clearing house. All businesses that want to make euro ACH payments within Europe will be required to use the SEPA-compliant format.
Implications of SEPA on US Multinationals
The SEPA migration deadline means that US corporations can no longer take a ‘wait and see’ approach to compliance. They should act now to understand the many opportunities SEPA provides, create a strategy for SEPA migration and ensure their new payments process is compliant and operating reliably well before the deadline.
Corporations that fail to comply will face several risks. Most important, the legacy systems they use today for euro accounts payable (A/P), accounts receivable (A/R), tax and payroll transactions will no longer work. As banks will be unable to process non-compliant payments via the SEPA channel, corporations could miss payment dates. Consequently, corporations will be forced to either make these payments via wires at a premium cost, or pay a third-party service provider to make their transactions SEPA compliant. This semi-manual process could, in turn, expose corporations to greater risk of payment errors.
Recommended Next Steps
With the deadline fast approaching, now is the time for corporations to take action. Most importantly they should determine their future legal entity structure for Europe and they need to assess their current technology to determine whether it can support the SEPA format. They should also identify SEPA-compliant banking partners and update their suppliers’ information to include the enriched International Bank Account Number (IBAN) SEPA requires. Forward-looking corporations are using SEPA as a springboard to re-examine the entire payments process and adopt the new technologies and processes that help control costs, improve transparency and boost efficiency. Some best practices that they can put in place include: