The Single Euro Payments Area (SEPA) is a payment system that enables businesses and individuals across the European Union to send and receive money electronically without the added fees typically associated with international transfers. SEPA is designed to increase financial integration within Europe, strengthen the euro, and simplify euro bank transfers. Nearly 42.6 billion SEPA credit transfers were sent across the region in 2022.

Below, we’ll cover whether the United Kingdom is a SEPA country, how cross-border payments differ in SEPA vs. non-SEPA countries, and best practices for businesses using SEPA payments.

What’s in this article?

• What SEPA does for businesses
  
• Is the UK a SEPA country?
  
• SEPA vs. non-SEPA countries
  
• Best practices for UK businesses using SEPA payments
  

What SEPA does for businesses

The SEPA payment system facilitates faster, more cost-effective, and more predictable cross-border transfers. Here’s a closer look at how SEPA helps businesses:

• It allows businesses that operate in multiple European countries to manage their money in one place rather than juggle multiple local bank accounts.

• SEPA’s quick payment processing helps businesses get paid faster.

• Its standardized approach makes it easier for businesses to comply with EU rules, regulations, and reporting requirements.

• SEPA payments enable a simpler tech setup by being compatible with most financial and accounting software.

• SEPA Direct Debit allows businesses to manage regular payments such as subscriptions and monthly fees across Europe with one straightforward set of rules.

• The system makes it easier for businesses to expand into new European markets.

Is the UK a SEPA country?

Yes, the UK is still a SEPA country even after leaving the European Union, but it participates as a “third country.” This means that while UK banks and businesses can still make and receive euro payments through the SEPA system, the UK’s status change has introduced the following conditions:

• Higher fees: Some banks began applying new fees for SEPA transactions between the UK and EU countries after Brexit. These vary depending on the bank or payment service provider.

• Longer processing times: Payments between the UK and EU SEPA countries can carry longer processing times, although many banks have worked to minimize delays.

• Additional compliance requirements: UK-based businesses must provide additional information for transactions going to the EU.

SEPA vs. non-SEPA countries

Here are the key differences between SEPA and non-SEPA countries.

Payment processing

SEPA countries have a unified system for euro payments. Payments within these countries follow a standardized process for fast, efficient transfers. Payments are also typically processed within one business day, with no differentiation between domestic and cross-border transfers.

Payments to or from non-SEPA countries don’t follow the same standardized format. Instead, they rely on various international payment networks such as the Society for Worldwide Interbank Financial Telecommunications (SWIFT), which can take longer and be more expensive.

Fees

Fees for cross-border euro payments in SEPA countries are comparable to those for domestic payments. Businesses and individuals aren’t generally charged more for euro transfers within the SEPA zone.

For payments involving non-SEPA countries, fees are often higher and can include additional charges from intermediary banks. This can make international transactions more costly and less transparent, with both the sender and recipient potentially facing unexpected fees.

Timelines

Transfers within SEPA are usually settled within one business day.

Timelines for payments to non-SEPA countries are less predictable and can range from a few days to more than a week, depending on the banks involved, currency exchange processes, and any intermediary institutions.

Best practices for UK businesses using SEPA payments

In order for your UK-based business to make the most of SEPA transfers, consider implementing the following best practices.

Expect more checks on your payments

Due to the UK’s non-EU member status, EU banks and financial institutions are required to conduct more thorough checks on payments involving UK entities. These include stricter Know Your Customer (KYC) and Anti-Money Laundering (AML) checks. To avoid delays, be proactive by having clear, up-to-date records for each transaction, including contracts, invoices, and proof of business relationships.

Watch out for new, higher fees

Fees for SEPA transactions involving UK entities can vary widely depending on the bank or payment provider. Common charges include international payment processing fees, intermediary bank fees if multiple banks are involved, and currency conversion costs if the payment is not in euros. Review your bank statements regularly and compare service providers to find the most cost-effective options. Consider negotiating directly with your bank to reduce or cap fees where possible.

Use the right formats to avoid hassles

SEPA payments require adhering to strict standards such as the ISO 20022 XML format. If your payment systems aren’t updated to support these formats, payments might be delayed or rejected. Invest in software that automatically generates payments in the correct format and integrates with your existing accounting systems. Test your systems regularly to ensure they’re compliant and running smoothly.

Account for longer processing times

Banks might take longer to process UK SEPA payments because they require additional checks or approvals. This is especially true for large amounts or if the transaction appears unusual. Plan your cash flow with this in mind by allocating extra time for cross-border payments to clear. Communicate with your suppliers or partners about possible delays to manage expectations on both sides.

Double-check payment details

Errors in payment information—such as an incorrect International Bank Account Number (IBAN) or Bank Identifier Code (BIC), or a typo in the account holder’s name—can cause delays or rejections. Use automated validation tools to check for these errors before payments are initiated. Update your contact and payment information databases regularly to ensure accuracy and avoid costly mistakes.

Stay up-to-date on changing rules

SEPA compliance requirements are always changing. Assign members of your finance or compliance teams to monitor these changes and adjust your processes accordingly. Joining industry forums or subscribing to regulatory updates can also help you stay informed.

Be ready with extra documentation

For certain payments, especially those flagged as high risk or involving specific industries, you might need to provide more detailed documentation to comply with regulatory checks. This could include signed contracts, proof of delivery, or explanations about the payment’s purpose. Establish a system to organize and securely store these documents so that they can be quickly accessed when needed.

Mind the currency exchange rates

Currency fluctuations between the British pound and the euro can affect the final amount received or paid, especially for larger transactions. Develop a strategy to mitigate these risks. This might involve implementing forward contracts to lock in exchange rates or using multicurrency accounts to reduce the need for conversions. Review your foreign exchange strategy regularly to keep it aligned with your business needs and market conditions.