Transferring money in the Eurozone – the processes are simply explained to make sure you get your job done successfully.
There has been continuous development in world finance and economy and how transactions within it are made. With time, the era of printed cash is seemingly coming to an end as more people and businesses prefer using digital payment systems.
Modern technology is paving the way to making transactions simple and easy. If your business deals mainly with transactions inside the Eurozone, then the best way is via the Single European Payments Area or SEPA, which makes the job much easier.
What is SEPA?
The Single Euro Payment Area (SEPA) is a program launched in 1999 to make cashless transactions easier and cost-friendly throughout the European region.
With 35 countries taking part in the program, SEPA has enabled euro bank transactions to be done more competitively and with greater simplicity. To get started, make sure you have a bank account in a SEPA country.
An alternative to bank accounts is the Euro IBAN account which lets you make your local and international business transactions without the need for several different bank accounts.
How to Get Started?
Although the process might seem intimidating at first, once you understand the process and what you need to do, you will realize that this program is quite efficient and cost-friendly.
So here’s what you need to set up a SEPA account.
1. The Creditors’ Information
The first requirement is to provide information such as the amount of money from the creditor or payer where your business is the recipient.
Although cross-border payments can now be done as simply as making transactions in the domestic market, make sure that the bank accounts used are applicable for the SEPA program.
Luckily, thanks to the Europen Banking Association (EBA), most banks can move to the SEPA program with ease.
2. The Mandate
To collect payments from each other, the European Payment Council (EPI) of the Eurozone has made the payment contract mandatory in its authorization agreement. Sepa Direct Debit (SDD), SEPA Credit Transfer, and Sepa Instant Credit Transfer are all payment options that you can use according to your requirements.
3. SEPA Direct Debit Accounts
SEPA payments are done between banks and so you need to create an account to make all transactions. These transactions require the business or the merchant to have a SEPA Direct Debit (SDD) mandate signed by their customers.
You need to include the details of the merchant and the payment method in this mandate. You also need proper identity verification. This document is then submitted to the associated banks so that they can be verified and the transactions can be made.
Direct Debit via SEPA (SDD)
SDD is commonly used to pay bills or sign up for subscriptions. This – like all other SEPA payment schemes – must be done in Euro currency and from one bank to another.
The mandate clearly states the specifics of the transaction so that the customer is aware of the terms and can act accordingly.
The two types of SDDs are the Core Direct Debit, which is used between producers and consumers, and the B2B Direct Debit, which is used to collect from businesses.
From issuing the mandate to notifying customers when payments are due, merchants have complete control over the transaction. This is the main distinction between the direct debit and credit transfer methods.
4. Payment Submission
The merchant, as previously stated, is in charge of the entire transaction. They must provide a pre-notice to the customer that includes the date and time of collection, as well as the total payment due, with or without adjustments.
The mandate unique to the transaction is also to be noted down. This allows debtors or customers to double-check that they have enough money to pay the merchant. It’s worth noting that a 14-day notice is standard, but merchants can work with their customers to adjust this.
5. Other Legal Formalities & Documentation
International Bank Account Numbers (IBANs) have been required for SEPA nation and cross-border payments since 2014. The IBANs eliminate the need for bank identification codes by representing four key elements: the country identification code, the bank account number, a bank identifier, and check digits.
The IBANs of both the merchant and the payees are required for the transaction to be processed.
Additionally, the EPC publishes a rulebook that is useful to both parties, as inflation and other factors influence the size and number of cross-border payments.
These rulebooks include the criteria that must be met for SEPA payments to be accepted. The rulebook also contains information on handling refunds, reporting fraud trends, clarifying customer reports, and managing payment messaging.
Other Methods Worth Mentioning
Although SEPA is becoming the standard medium for money transactions in the European regions, it is worth noting that there are other options available depending on the situation.
You can make transactions with an international card payments system or use a money transfer application.
Ultimately, the best method for you depends on the currency that the transaction will use and the type of payment that needs to be sent. Lastly, the country from where the money will be collected is also an important factor to take into account.
Conclusion
SEPA is an effective payment instrument that is widely used and has several benefits to it such as cutting costs and making cash flow forecasting easier.
However, it is not necessary to depend on it as the sole medium of Eurozone transactions.
The use of IBAN accounts, for example, is just as good as the SEPA way of transactions.
We hope that this article has helped you understand how to make such transactions more convenient for driving business efficiency and growth.