EURO COUNTDOWN: e-day minus 197: Paving the way for a smooth change-over

Date: 18/06/1998

By Tim Jones

SINCE last month's decision to launch the euro, the doom-merchants have taken a short holiday.

Back in January, a survey conducted by information technology giant IBM found an alarmingly low level of preparation for the new currency among small and medium-sized enterprises.

Of the 18,000 companies with fewer than 1,000 employees questioned, only 12&percent; had begun their transitional work, with German SMEs lagging well behind their French and, ironically, Italian counterparts.

“It looks rather alarmist now,” admits Philippe Joret, the manager of euro programmes at IBM Europe's small and medium business unit.

“I am sure that, since May, preparations would have gone much further, but it is still a concern. Many SMEs are ill-prepared for working with 12 currencies - their own, plus the other ten in the euro-area, plus the euro itself.”

But what does an SME really have to do to get ready for the three key dates in the euro calendar: 1 January next year when the new currency is created, January-June 2002 when euro banknotes and coins circulate together, and July 2002 onwards when the euro reigns supreme?

Irish software consultants Systems Modelling Ltd has drawn up a scenario for the change-over for a small firm in the euro-11 area which is highly exposed to the new currency.

This hypothetical small retail company carries out its business and holds its bank account in national currency. Its shop serves the public, accepting banknotes, coins, credit cards and charge-cards, and it also sells on account to other businesses.

All of its customers pay in national currency and its handful of foreign suppliers are paid by bank draft in their own currency.

The firm's French and German suppliers have announced that, from January next year, they are converting to the euro but will still accept national currency.

The firm runs a standard accounting software package catering for its domestic money and wants to be able to handle the euro without changing over to the complexities of a multi-currency programme.

The company's bank is likely to offer cheque books in both local currency and the euro, but could well charge for opening a second account in euro. The firm will not, however, be able to write cheques on its euro account and send them off in payment to foreign suppliers since the banks do not have a facility to clear the cheques outside the country.

Instead, bank drafts will have to be used or the new automatic payment system Target, the pricing of which was announced by the European Central Bank last week.

Assuming the firm's local suppliers announce their change-over to the euro soon after January 1999 and send out their price lists in euro, they should follow EU-established codes of practice. This means displaying the original national currency price and the euro price to make comparison easy and show the accuracy of the conversion.

If enough customers want to be invoiced in euro, the firm will have to change eventually, but Systems Modelling suggests, as an interim measure, that it presents local currency invoices converted to euro.

If the company decides to do this and its accounting software is in one currency, a 'converter' package will have to reprint invoices in euro.

Given the approach of the 'millennium bug', many SMEs may wish to buy new accounting packages to kill two birds with one stone.

Software vendors are virtually certain to provide conversion services from older programme packages so as to hang on to existing market share.

“It is not safe to attempt to change too many things at once,” says Systems Modelling. “If a new package is being contemplated, this must be done well.”

“Change early” is the advice from IBM's Joret, who believes the euro is less of a challenge and more of a main chance for small firms.

“We think the euro will be a great opportunity for SMEs to reconsider their business and marketing strategy,” he says. “Why? Because, suddenly, with the euro and the proliferation of the Internet, these firms will be able to access at a low cost a market of 290 million people. Those who migrate to the euro first will be in a strong position to capitalise on this first.”

Complete change-over will probably fall in the middle of the transitional period, while the retail arm of the firm will have to wait until 2002, when the notes and coins are introduced.

UEAPME, the association of European SMEs, is running a programme to train 3,000 small company advisers to go out and spread the word. “There is a general lack of information out there for business,” says UEAPME's Garry Parker.

“Micro-enterprises in particular are not ready and we need to get the message of preparation across.”