by Tony Richter, SEPA Programme Director, Payments and Cash Management, HSBC
News that the European Commission has proposed a grace period of six months for companies to be SEPA compliant is welcome, but it comes with a warning that companies must now put SEPA compliance high on their ‘to do’ list. Companies, large and small, need to be able to make payments in the SEPA format in order to continue to function. Those that are not compliant will not be able to pay staff and suppliers, or receive payments from customers, with damaging consequences for their business and the broader economy.
SEPA was developed by the European Payments Council (EPC) to create a borderless system of Euro payments with enhanced clarity, consistency and efficiency. The goal is to make SEPA transactions as easy to send and receive as domestic Automated Clearing House (ACH/non-urgent batch/Autopay) transactions are today. Companies should be talking to their banks today to ensure that they have a robust plan to ensure SEPA compliance as soon as possible. There are a number of benefits, in both the short and long term, to doing so. Companies can easily avoid the scenario of payments not being processed by talking to their banks and their IT suppliers now. A robust project plan will save time, money, reputational damage and regulatory breach.
At HSBC we’re also looking much longer-term. In the future, SEPA readiness means more than the ability to continue to function smoothly - we believe the opportunities are much greater. By embracing SEPA, customers can simplify their processes, reduce costs, improve liquidity and pursue new growth prospects.
Standardised, more efficient payments functions enable customers to make cashless payments across 33 countries using a single bank account, while treasurers can realise significant economies of scale by centralising euro payments in a regional treasury centre. For non-European headquartered companies SEPA offers a highly price-competitive trading opportunity in Europe. For those companies already active in the region, there will be opportunities to look at their existing matrix of banking relationships to rationalise the number of accounts they may have, and to centralise their own payments function to a far greater extent than in the past. This, in turn, will reduce the complexity – and, potentially, the cost – of doing business. For SMEs, who may have only transacted domestically in the past, the entire European market now becomes easier to do business in, providing new trading opportunities.
SEPA is likely to be a catalyst for greater centralisation of corporate treasury activity into a payments factory or shared service centre, where SEPA Rulebooks cater for payables and receivables by one group member for and on behalf of other group members. And let’s not forget that the SEPA Direct Debit for the first time offers a standardised, electronic cross-border collection instrument with quicker and cheaper settlement than, say, cheques or cash.
In summary, the costs of not being SEPA-ready are significant and must not be ignored just because the EC has allowed a period of grace. Equally, the opportunities for treasurers to simplify their cash management structures and add value as a strategic adviser; and for any business doing business in Europe to take advantage of simpler trading conditions, are too valuable to be ignored.