By the cut-off date at the very latest, SEPA credit transfers should work perfectly. Otherwise, companies run the risk of lost cash discounts, arrears fees, and a loss of trust among business partners. These are just some of the problems that may arise unless the SEPA credit transfer system works flawlessly from February 1, 2014. Staff expecting to receive their monthly salary payments on time will also have little sympathy for failed transfers. Banks will undoubtedly offer assistance to those businesses that still have problems with SEPA after the cut-off date, but this will certainly not be free of charge and may not be sufficient.
This scenario can be prevented. It is, however, important for businesses to avoid some common mistakes when going about their SEPA implementation. Read about the obstacles involved and how you can prevent them on the following pages:
- Underestimating the cost and time involved
- Experian check: blockages with SEPA caused by erroneous payment transactions
- No clear-cut initial assessment made
- Lack of clarity about SAP Enhancement Packages (EHP)
- Only keeping an eye on SEPA rather than all processes
- Test runs with banks not completed
- Accounts receivable: not receiving all signed mandates on time
1. Underestimating the cost and time involved
All too often, the effort involved in SEPA changeover is seem as an issue of the right software settings. This leads to businesses underestimating the time and cost involved and also explains the failure to take this issue seriously enough. SEPA implementation does not simply involve replacing the bank account number and bank key with the corresponding IBAN (International Bank Account Number) and BIC (Business Identifier Code). Large amounts of master data need to be modified and new payment methods set up, too.
2. Experian check: blockages with SEPA caused by erroneous payment transactions
A study illustrates the problem: the information service provider Experian has analyzed more than 650,000 account and 220,000 IBAN data records from businesses throughout Europe and compared them with figures from the European Central Bank. More than 12 percent of all electronic payment transactions in euros contained erroneous data. This may lead to sensitive blockages of the new standardized, time-saving bank transfers following implementation of the SEPA system. Only 65 percent of all euro transactions are currently processed with entirely correct recipient data. The study also shows that 45 percent of SEPA-compliant IBAN numbers – stored by large enterprises in the eurozone – lack the corresponding BIC codes (Bank Identifier Codes) needed to successfully complete a transaction.
3. No clear-cut initial assessment made
What then does a SAP user have to do to be sure that payment transactions will still work in February 2014? The first step with the SEPA changeover involves an initial assessment. The version of the SAP system, the number of active company codes, the type of FI interfaces, and the quality of the master data essentially determine the expected effort involved in the changeover. Businesses must also ensure that passive SEPA capabilities are available, i.e. that SEPA transactions can be received, interpreted, identified, and processed in the SAP system – otherwise substantial additional work within accounting may be necessary. The number of subledgers (FI-AP, FI-AR and/or FI-CA), issues regarding the technical format (MultiCash, Swift MT940, DTAUS format), and possible customer-specific modifications of electronic bank statements are also determining factors. Businesses should ask themselves which banks they are working with, and whether transfers and direct debits are made via all these banks.
It is also necessary to take a critical look at the master data (bank directory, accounts receivable, and accounts payable) and clarify whether the BIC/SWIFT and IBAN codes have already been added. Likewise, the issue of which e-banking applications are currently in use and whether a change is necessary may be compelling factors for many businesses.
Next page: An opportunity to optimize existing data
4. Lack of clarity on SAP Enhancement Packages (EHP)
The number of questions alone shows that the changeover involves a vast array of issues. For instance, business processes and systems need to be tailored to the current payment instruments and payment methods, the new XML-based payment formats set up, and new methods for data transfer taken into account in the case of mass payments.
The following is needed for the SAP system: R/3 Enterprise for DMEE and transfers Support Package 29 (SAP_APPL), SAP ERP 2004 Support Package 17 and 18 (SAP_APPL), SAP ERP 6.0 Support Package 11 (SAP_APPL). Enhancement Package 2, which was shipped in mid-2007, already includes the SEPA credit transfer in Support Package 01. The SEPA mandate management and the associated DMEE format tree for the SEPA direct debit were shipped for subledger accounting FI-CA with Enhancement Package 2 for SAP ERP 6.0, and for subledger accounting FI-AR in Enhancement Package 3 at the end of 2007.
5. Only keeping an eye on SEPA rather than all processes
While the obligatory SEPA changeover is limited, these projects should be seen as an opportunity to look at, optimize, and tailor existing projects to new business requirements. Ultimately it is not every day that you make such far-reaching changes to crediting and debiting processes. The possible bundling of payments is one example of this kind of optimization.
The effort involved in checking the quality of master data must not be underestimated. As often happens, the devil lies in the detail. Not only do IBAN and BIC have to be added and redundant data cleansed, but naming conventions have to be checked for compatibility with the new processes. Direct debits in the form of the SEPA direct debit process do not, for instance, accept any special characters.
6. Test runs with banks not completed
With SEPA credit transfer, the previous format of the electronic payment transaction (the DTA/DTAUS process) is being replaced. The data for SEPA is created as XML payment media (ISO 20022). The Payment Medium Workbench must be set up for this in SAP and is used to create payment media formats and to generate files, as well as a DMEE (Data Medium Exchange Engine) in order to generate the actual XML payment media. This includes defining and modifying the payment media formats as well as creating the payment files. The notes to payee must be modified in terms of length and format. If the note to payee is no longer sufficient due to this more stringent restriction, the creation of remittance advices must be included. Users need to remember that in future the IBAN can also be maintained without the bank account number (from SAP ERP 6).
If the SEPA credit transfer is set up in the in-house system, test runs in conjunction with the banks must be completed. In particular, experience shows that the headers in the XML files, which must be identified for further processing by the bank’s system, can often cause problems.
7. Accounts receivable: not all signed mandates received on time
The changes in the area of accounts receivable are even more far-reaching. The SEPA direct debit requires a signed mandate under all circumstances. Mandate management with corresponding forms must therefore be set up. Direct debit mandates can be converted into SEPA mandates, whereas direct debit orders cannot. In any case, customers must be informed about the mandate conversion; new mandates must be obtained in the case of direct debit orders. SEPA direct debit also envisages an obligatory characteristic in the SEPA direct debit mandate regarding account-independent, unique identification of the creditor: the Creditor Identifier/CI.
If the payment methods have been set up and tested, automatic bank statement processing must also be modified and new business transaction codes introduced in the MT940 (SWIFT).
Based on the experience of SAP partner SPV, here are the three most important things you can do to avoid issues during SEPA implementation:
- Cleanse master data:
Anyone switching their payment transactions in SAP to SEPA should get down to work early on. Thorough preliminary work on the master data minimizes sources of error and hence, providing this work is completed in advance, the SEPA changeover can be used as a worthwhile opportunity to review all relevant processes.
- Stagger SEPA and SAP updates:
In light of the additional workload in the IT and user departments, SEPA changeover and major migrations or SAP upgrades should be staggered. The decision to put back an SAP upgrade or initially only to roll out the SEPA capability can ensure the work involved is manageable. SAP Support Packages or SAP Notes for ensuring SEPA conformity in SAP environments are available for all SAP ERP versions from 4.6c or higher. The minimum requirement for the SEPA credit transfer is release 4.6c; for the SEPA direct debit, release 4.6c has been required since the beginning of the year.
- Appoint a SEPA Coordinator:
A SEPA Coordinator should ideally be appointed for the organizational side. This Coordinator maintains contact with the banks and monitors the renewal of mandates. Audit procedures and test runs are indispensable, with feedback from banks also required as part of this process – you should therefore not wait until 2014 if possible. Failure to take this issue seriously enough will result in increased transaction costs, an excessive flurry of activity due to erroneous payments, and a loss of trust among partners and banks.
Wolfgang Braun has been in charge of Finance and Controlling at SPV AG since 1999 as owner and as CEO since 2005. Numerous companies from a range of segments, including industry, retail, bancassurance, and services, benefit from his SAP consulting expertise garnered over more than 24 years.