Making global payments comes with multiple benefits, including improved vendor and supplier relationships, and the ability to negotiate pricing discounts. Identifying which global payments to make can be confusing at first. For example: Did you know that if you or your payee is part of the Single Euro Payments Area (SEPA), you’re qualified to make Global ACH payments?
What is SEPA (Single Euro Payments Area)?
Single Euro Payments Area (SEPA) initiative works to make international payments as simple and inexpensive as domestic payments. This creates more competition in the payments industry by creating one ‘payment services’ market, which lowers prices for consumers. The initiative was created by the European Union to harmonize electronic payments across the eurozone.
There are 32 countries that participate in SEPA, which is an established home market area for making cross-border Euro bank transactions. Essentially, it simplifies the international money transfer process by making it equivalent to domestic transactions. This means that, even if you’re transferring funds between two banks that are in different SEPA countries, you can enjoy a fast transaction and minimal transfer fee.
What are SEPA Payments?
SEPA payments are payments that are processed via the Single Euro Payments Area network to facilitate cross-border bank transfers in 32 Eurozone countries. SEPA helps make cross-border transfers fast and cost-effective.
How Do You Set Up SEPA Payments?
Setting up SEPA transfers is similar to the way you would set up an ACH transfer in the US. The steps to setting up a SEPA payment are as follows:
1. Provide the payer or creditor’s bank account information and payment amount.
2. Provide the payer with an “SDD Mandate.” This is an authorization agreement, mandated by the European Payment Council (EPC), which allow the payer to authorize the biller to collect funds from the payer’s account.
3. Set up the customer, or payee’s bank account for SEPA Direct Debit.
4. Submit the payment, or payments for processing.
Choosing a global payment platform that automates cross-border transactions can improve your bottom line, enhance compliance, and simplify your ability to get funds to your suppliers on time, every time. But not all global payment platforms support SEPA payments. Choosing one that does is vital to comply with International Bank Account Number (IBAN) requirements. IBANs are needed to make a cross-border payment using the SEPA system.
What Are the Benefits of SEPA Payments?
Probably the most notable aspect of the SEPA system is the ability to make Global ACH payments. This payment method allows you to make cross-border payments in a timely manner without the high transaction fee that is often associated with international wire transfers. It also eliminates the hassle of using paper checks.
With a global payments platform that automates ACH payments, you can achieve optimal tracking. This gives you a bird’s eye view of each payment, including payment status updates, invoice due dates, and failed payments. You can make affiliate payments with the push of a button or have them automated to ensure each affiliate is paid on time.
What is SEPA Direct Debit?
Conducting a SEPA direct debit means the payee is collecting a Euro-denominated payment from your account. The payee receives a request from you to pull funds from your account and then initiates the payment. This type of payment is bank to bank, meaning there is no card network involved. The entire payment process is performed between the payer’s and payee’s banks.
It’s important to understand that a SEPA direct debit is only conducted in Euros. Even if both banks involved in the transaction are not Euro-based, a currency exchange will take place, which may come with a fee. The payer and payee will decide who pays for the conversion fee or if it will be split. The payee must have your IBAN to collect a SEPA payment.
A SEPA direct debit transaction is not a form of instant payment. Generally, it will take a minimum of two interbank working days to process; this applies if it is conducted under the business-to-business (B2B) SEPA direct debit scheme. When performed under the core scheme, it takes a minimum of three interbank working days.
Under the SEPA core direct debit scheme, a payee will submit the collection request at least five interbank working days before your payment is due and at least two days in advance for any subsequent payment collections. Under the SEPA B2B direct debit scheme, the payment request only has to be submitted one interbank working day before the payment due date. With this in mind, if you are wanting to make a cross-border SEPA direct debit payment in the quickest manner possible, the SEPA B2B direct debit scheme provides the fastest avenue.
Is an IBAN Number Necessary to Send a SEPA Payment?
In August 2014, SEPA guidelines were updated to indicate that only IBANs were needed to conduct a national SEPA payment. In February 2016, the same update was applied to cross-border SEPA payments.
The SEPA IBAN-only rule simplifies cross-border payments. Because there is no need for a bank identifier code, this reduces processing errors and results in higher rates of successful international money transfers.
Contact your global payment services provider or bank to get your IBAN. You can also log into your online banking portal to view it. Your IBAN will have up to 34 alphanumeric characters, which represent:
– Country identification code
– Bank account number
– Bank identifier
– Check digits
In addition to your IBAN, you must have the payee’s IBAN. Contact the payee or the bank to which you are sending the payment to identify this number. As you can imagine, when you’re making mass global payments, it can be incredibly time-consuming locating each payees’ IBAN. A global payments automation platform can automate the process for you.
Do More With Tipalti
For faster processing and automation with SEPA & cross-border payments, check out Tipalti’s global mass payment solutions to help streamline your business’ payables operations.