SEPA – What Should You be Thinking About? Part 4

The Single European Payments Area – you’re steadily seeing talk of it everywhere. The new financial structure for banking in the Eurozone will mean changes for every business based there.

Here we present the practical information you need to get a grip on things, and take the right steps to make sure European businesses are ready for the new banking system.

Prepare for the move to a new collection system
If you use the direct debit system to collect money from your customers this final step will involve the most work for your business.

New contract
The first thing to do is to sign a new European collections contract with your bank. This will then allow you to obtain your Creditor ID, the unique identifier for you as a business using direct debits to obtain fees for your products or services.

Choice of collection type
Once you have your Creditor ID, you’ll need to make a choice regarding which of the two new SEPA collection methods you are going to use – ‘core’ or ‘business to business’. Businesses are free to use either.

The main difference between the two lies in the right to recall money collected from an account. With the core process, the right of recall has been extended to 8 weeks from the date of collection. However, with the B2B process, debtors will not be able to recall collected money at all.

As such, existing direct debit mandates can be passed to the core system without the need to have them resigned by the customer. However, as the right to recall collections is removed with the B2B process, existing mandates must be renewed with the customer before being submitted in an instruction to collect at your bank.

Variations in time frames
Although both systems require you to give 14 days’ pre-notification of intent to collect to the debtor (you’re free to do this as you wish providing you supply the date and the amount), the core system requires a longer notice period at your bank when you set up a direct debit.

New instructions to carry out a core direct debit (i.e. the first collection file for a new mandate) need to be given to the bank 5 days before the money needs to be collected, with the subsequent instructions to collect then given 2 days in advance. As such, keep in mind that new mandates for core direct debits need to be reported to the bank earlier than with the current system. For B2B collections, both the initial and subsequent direct debit instructions can be provided 1 day in advance.

Supplying the direct debit files to your bank – key information
In the new core system, the following information for both new and ongoing direct debits needs to be included in every instruction to the bank to collect:

o Your Creditor ID
o The direct debit mandate reference number
o The IBAN of the debtor
o The date the agreement was signed (use 01-11-2009 for already existing direct debit mandates – all banks have agreed on this as a dummy date for existing mandates that will be continuing in the new system)

For B2B direct debits, the debtor needs to sign a new collection agreement that also needs to be registered at their bank (your debtor needs to do this themself). The following information needs to be supplied with every instruction to your bank to collect:

o Your Creditor ID
o The direct debit mandate reference number
o The IBAN of the debtor
o The date the agreement was signed

Furthermore, please be aware that the B2B collection will not be supported by every bank – important to note given that the banks of both collector and payee must support the system for the collection to work.

In the last installment, we look further into the new collections mechanism, and some key points that will need your attention.

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