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SEPA is coming – Are you ready?

A change to the way you bank- Are you ready for SEPA?

Across Europe major changes are taking place in the banking system which will have a significant impact on the credit management function, and how payments are processed, SEPA is at the forefront of these changes.

Currently each country has its own bank clearing system for transfers, standing orders, direct debits and cheques. In Ireland a six-digit national sort code and an eight-digit bank account number are used in all banking transactions.

From now until 1 February 2014 the national system is being phased out across Europe in favour of the single euro payments area (SEPA), and the international bank account number (IBAN) code must be used in all transactions. IBAN codes have been in use for cross-border transactions since 1 January 2007; they will now have to be used for all euro currency banking transactions.

Single Euro Payments Area

Key Banking Changes

So what will change from the credit management perspective? All customer and supplier bank details have to be updated in the new format, all euro wage and salary payments must use the IBAN codes.

If you take direct debits in any Euro zone country you have to present the file in the correct format. You have to give three days’ notice to process recurring direct debits, ad six days’ notice when taking a direct debit for the first time. If you present a mixed file, that is , one containing new and recurring payments, this will take six days to process.

Direct debits

Currently all consumers and businesses have 24 hours to ask for a refund of the direct debit amount. Under the new system this is extended to eight weeks. So any time within eight weeks of their direct payment, a consumer or business can ask their bank for their money back and the bank is obliged to give it to them, no questions asked.

Up to now the mandate has been sent to the banks for processing and filing. Underthe new system, the responsibility of maintain the mandates lies with the originator, who has to maintain the file and retain all mandates while in use and for a period of 13 months after the last direct debit was taken.

On the upside, you only have to process a single batch of direct debits by using IBAN, irrespective of the Euro zone country in which the account is held. So you can process a batch containing details for Ireland, France and Malta at the same time.

There is a further change coming in 2016 when SEPA will only accept files in XML format, so if you are planning a changeover, it is a good idea to take this into account now and use only XML files.

Finally, 1 February 2014 is the date the national systems are switched off completely. My advice is that if you are affected by the changes, you should start your conversion process as soon as possible. Waiting until the last minute could expose your business to the risk of not being able to access your customers, suppliers and staff bank accounts and possible delays in payments- so do it now.

Talk to your relationship manager at your bank for further information about what needs to be done.

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