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A Pragmatic Approach to SEPA

by Guy Simons, Assistant Treasurer, TRW Automotive

With very little time to go before the deadline for SEPA (Single Euro Payments Area) migration, many companies will be challenged to achieve full compliance despite the additional six-month migration period which has recently been announced. One of the reasons that many have delayed full migration is the declining marginal benefit, so full SEPA migration is now treated as a compliance project rather than a catalyst for cash management transformation. Yet, while the degree of potential benefit will vary across organisations, the payments landscape in Europe is changing fundamentally. In this article, Guy Simons, Assistant Treasurer responsible for global treasury operations at TRW Automotive, takes a pragmatic view of SEPA, both from a compliance perspective and when considering the opportunities that it presents.

Taking early advantage

TRW Automotive recognised the value that SEPA offers to a multinational business early on. We executed large numbers of costly cross-border vendor payments in Euros between EU member states, with the average payment size around 25,000 EUR. We could immediately reduce our banking charges by replacing these with SEPA Credit Transfers (SCT) that enabled both domestic or cross-border EUR payments to be transacted on the same terms and at the cost of a domestic payment, from 2003 for amounts under 12,500 EUR, from 2006 for amounts up to 50,000 EUR and since 2008 for any amount. We therefore selectively updated settlement instructions with IBAN (International Bank Account Number) and BIC (Bank Identification Code), and started channelling more EUR payments through German banks where the costs were lowest. We did not however implement the XML ISO 20022 formats on which SEPA payments are based, instead relying on conversion of the legacy formats by our banks.