Why you are not worried about SEPA and IBANs

By Clinton Jones on December 17, 2013

Stressful business man in office with too many stack of paper and folder on his desk. Business concept in overload work and very busy.I have been scratching my head about the concerns of the upcoming SEPA and IBAN conversion deadline. Although the deadline, February 1st, 2014, is quickly approaching, a large number of attendees to a recent Winshuttle Webinar  revealed that they have yet to put their final SEPA and IBAN conversion in place for use with SAP.

The reality is that for the majority of European businesses this is a non-issue, because they simply still don’t use electronic banking transfers often or have already made the switch. In previous posts about readiness and how to cope,  I highlighted that there were a number of ways in which businesses running SAP could complete the conversions of their existing bank accounts to the new format.  I also show cased how they could avoid having to depend on LSMW scripts to complete the conversion and more easily deal with the errors that will inevitably arise.

I am surprised how many companies still seemed to have not addressed the quickly approaching SEPA deadline. I believe the reason so many companies lagging is possibly due to the following:

  • Many continue to rely on receiving and sending payments by paper (Cheques, drafts and money orders)
  • Many use credit cards or purchasing cards to make payments
  • Those that use electronic funds transfers in Europe at least probably rely on SWIFT

SEPA, is a European Commission (EC) and European Payments Council (EPC), initiative is designed to create a single set of standards for processing Euro payments across the European Union.SEPA aligns the cost of cross-border transfers with domestic electronic transfers, resulting in significant cost reductions for the banks and automatic clearing agencies.

It is envisaged that SEPA Credit Transfers (SCT) and SEPA Direct Debits (SDD) will eventually replace all existing national payment schemes. The initiative will supposedly also create faster settlements and simplified processing to improve general cash flow, reduce exchange costs and facilitate access to new business markets as the EU continues to expand. money small

Why bother with something that is slower and costs more?

The recent Association for Finance Professionals Study attempted to gauge the extent in which treasury and finance professionals in the US are taking advantage of innovative payment methods. The results were surprising, especially that the typical organization is still receiving 50% or more of business-to-business payments by cheque.  This settlement method, which has been in common use for more than 300 years, is a hard one to kill off. The reason may lie in the continued sluggishness of the banks to instantaneously credit beneficiary accounts.

The most widely used payment method for payments made across country borders is wire transfers or SWIFT equivalents. SEPA (Single Euro Payments Area) payments are for fund transfers within the European Union only. For SEPA payments banks strangely require both the IBAN number and the SWIFT code. Despite being electronic, SEPA payments can still take two to three business days to reach an account.

SWIFT payments on the other hand are for all international payments and can sometimes be quicker than a SEPA payment (within the European Union). For SWIFT payments banks require the bank account number/IBAN number and the SWIFT code. SWIFT payments can take between one and five business days. SWIFT transfers also tend to be more expensive than SEPA payments though this varies from institution to institution.

With the high fees and delays, you can instantaneously see why cheques still remain popular. I can put a cheque in the mail to you today and theoretically you could have it in a day or two. You still need to deposit it, and wait for it to clear, but old habits die hard. If you like the physical characteristics of taking a payment by way of a physical negotiable instrument, switching to something just as slow and potentially more expensive, may be very unappealing.

What are your thoughts?  Is your business still heavily reliant on the paper cheque and if so, why?

You can see details of the survey here and access the details of the AFP report also from there.


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About the author

Clinton Jones is a Director for Finance Solutions Management at Winshuttle where he has worked since 2009. He is internationally experienced having worked on finance technologies and business process with a particular focus on integrated business solutions in Europe, the Middle East, Africa and North America. Clinton serves as a technical consultant on technology and quality management as it relates to data and process management and governance for finance organizations globally. Prior to Winshuttle he served as a Technical Quality Manager at SAP and with Microsoft in their Global Foundation Services group.


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