Term
IBAN
The international account number format carrying the country and bank codes. One wrong character will not stop a payment at once, but it comes back late and with a fee.
Updated
What it means
IBAN is the international account number format: country code, check digits and the domestic account number. The check digits let a number be validated before a payment is sent.
Within SEPA the IBAN alone is enough and a BIC is usually no longer required. Outside the euro area the BIC is still needed, along with who pays the charges.
The check digits only confirm that the IBAN is written correctly, not that the account exists or belongs to the person you mean to pay. A typo in one digit is usually rejected, but an entirely different valid IBAN goes through without a problem. The payee name check that banks are introducing for euro transfers within SEPA reduces the risk, yet the payer remains responsible for a correctly entered payment.
How it works in practice
The IBAN belongs on every invoice you issue and in the partner’s master data in the accounting system. Batch payments draw from there, not from the e-mail that just arrived.
When bank statements are imported, payments match on the reference and the IBAN. Clean partner data therefore directly shortens the time a statement takes to process.
On invoices for Slovak customers we add a Pay by square QR code next to the IBAN. The customer scans it in the banking app and the account number, amount and payment reference fill in by themselves, which removes the typos that otherwise end up as unmatched payments. A company with several accounts in different currencies always quotes the one that particular payment should reach.
What to watch out for
Fraudulent change-of-bank-details e-mails are today’s most common attack on companies. A new IBAN from an existing supplier is always verified by phone on a known number, never by replying to that e-mail.
When changing banks, companies forget that customers have the old IBAN stored in their systems and in standing orders. If the old account is closed too early, payments bounce back late and with a fee, and receivables stay open. So we keep the old account running for a few more months and notify partners of the change in writing.
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