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How to get ready for SEPA

The two key steps to become SEPA compliant.

Once you have been granted a Creditor Identifier you will need to make two significant changes to transition to SEPA Direct Debit.

These two changes are:

  1. The conversion to IBAN and BIC codes.

  2. The conversion to XML format for exchanging messages.

This guide will walk you through these two key steps in becoming SEPA compliant.

Using IBAN and BIC codes

When payments are made, an account identifier is required to ensure that the payment gets to the correct beneficiary.

For SEPA Direct Debits, this account identifier must be the International Bank Account Number (IBAN).

Until SEPA, Direct Debit collections have generally used the national bank code and bank account number (BBAN details). IBAN is a way of showing these existing bank account details in an internationally recognized and standardized format. Changing to IBAN and BIC information is therefore a vital part of becoming SEPA compliant.

To transition to using IBAN and BIC, follow these three simple steps:

  1. Review current invoicing and accounting procedures and update any systems operating on the basis of account numbers and bank codes. You will need to find out whether your current payments systems can capture and handle IBAN and BIC formats. You can then decide whether to:

    • Modify your existing systems to capture and validate IBAN and BIC going forwards, or...

    • Continue capturing BBAN details and convert this data into IBAN and BIC retrospectively.

  2. Consider how you will retrieve BIC/IBAN information. This could either be done yourself or via a reliable vendor. You may also wish to clean or validate your databases to ensure all customer BIC/IBAN information is correct. This will help to avoid failed payments due to bad or out of date customer information. This can be done using a modulus checker or a provider who uses one.

  3. Provide easily accessible information on your own IBAN and BIC. For example, update invoices, stationery and other documents to reflect the correct BIC and IBAN information.

Retrieving BIC/IBAN information

Manual adjustment, transaction by transaction

Merchants may choose to manually collect their customers’ IBAN and BIC information. They would need to contact each customer directly to obtain accurate, updated account details and then manually update their databases. These details could then be checked via an online tool.

Alternatively, merchants could choose to use automated tools offered online to provide the data. There are numerous online tools available to assist in the creation of IBANs, although these do not necessarily validate the domestic details used to create the IBAN or guarantee its legitimacy.

Using a third party vendor

Fully automated solutions are embedded within corporate and bank business systems and websites. These are able to automatically create local IBANs and undertake modulus checking to validate the integrity of the data supplied.

Conversion to XML format for exchanging messages

SEPA Direct Debit file formats are based on the ISO 20022 XML format. Currently, message formats vary from country to country.

The use of the ISO 20022 XML message standard is now mandatory for Euro-denominated Direct Debits collected by businesses with more than ten staff members and a turnover or a balance sheet total of over €2 million. Updating systems to XML is a considerable undertaking.

It is the merchant’s responsibility to ensure payments are in the correct format before they are transmitted to a payment service provider. You will need to assess the current readiness of your systems and the level of development required. It may be possible to update internal systems to be compatible with ISO 20022 XML. However, if your accounts software provider is unable to provide SEPA compliant files, you may wish to use a conversion service.

For further information about supported formats, refer to the SEPA rulebooks or your bank.

GoCardless can help you get SEPA compliant

GoCardless is already SEPA compliant and, as such, takes the hassle out of the transition to SEPA Direct Debit for merchants, via:

  • IBAN and BIC account details - You only need to collect the IBAN of your customers. We automatically compute the BIC, saving your customers time and avoiding human errors. We check IBAN for you immediately on submission, and send an error if the IBAN is incorrect.

  • XML message format - As a GoCardless merchant, you will not need to transition to XML message formats. We will submit and receive any messages for you using this SEPA compliant format, as well as keep up with evolving regulations. See Submitting and Receiving messages from the banks for further details on how GoCardless can help you to understand and act on these messages.

To find out more about collecting SEPA Direct Debits, or to register your interest with GoCardless, visit our homepage.

GoCardless is used by over 60,000 businesses around the world. Learn more about how you can improve payment processing at your business today.

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