How does SEPA Direct Debit Work?

Familie & Finanzen: So gehen Familien in Deutschland mit Geld umFamilie & Finanzen: So gehen Familien in Deutschland mit Geld um
Nick Knuppe
Head of Product Marketing
Customer-centric marketer, fanatical about GTM.

SEPA Direct Debits make doing business in the EU straightforward. For example, suppose you’re doing business inside the SEPA area. In that case, all you need is your customer’s international bank account number (IBAN) and their permission in the form of a mandate, and you can collect one-off or recurring payments with very little additional admin.

What is SEPA Direct Debit?

SEPA Direct Debit is similar to the Automated Clearing House in the US or Direct Debit in the UK. The SEPA area encompasses most of continental Europe, with a few other countries included. In total, there are 36 countries in the SEPA area – 27 from the EU, three from the EEA, and six non-EEA countries.

Types of SEPA Direct Debit

There are two types of SEPA Direct Debit:

SEPA Core Direct Debit

This is mainly used for business to customer transactions. One-off payments are possible, but it’s mostly used for recurring billing. Common direct debits include mobile phone contracts, the monthly gas bill, and subscription plans. 

Any business owner looking to pull funds from a customer’s account must have a record of their permission to do so in the form of a direct debit mandate. The mandate can be a paper form or a digital form that is shown as part of the checkout process.

SEPA B2B Direct Debit

This type of SEPA Direct Debit is intended for business to business use. A mandate is also required. Not all banks offer this type of transfer, but all banks regularly deal with business accounts.

How do you choose the best SEPA Direct Debit for your needs?

Differences between SEPA Core and SEPA B2B

The most significant difference between these two services is how each handles refunds and chargebacks. Because SEPA Core involves consumers, there are strict protections against unauthorised payment withdrawal.

With SEPA Core, customers can request a refund eight weeks after making a payment without having to provide a reason. They also have the right to ask for a refund up to 13 months after a payment is taken from their account if no mandate exists (or has been lost). 

Only businesses can use SEPA B2B, and as long as the payment matches the mandated amount, no refunds are possible. 

Another difference is that when using SEPA Core, the customer is not required to authorise their bank to send the payment. Only the company withdrawing the money has to make sure they get permission to withdraw the funds.

Since the monetary amounts are usually much larger in B2B payments, both sides must authorise their banks via a mandate to process SEPA B2B payments.

What is a SEPA Direct Debit mandate?

A SEPA Direct Debit mandate is a document that shows your customer gave you permission to debit their account.

The mandate is usually included with any contract paperwork and asks the customer for their name, address, bank details, and signature. It should also contain information about how the customer can obtain a refund.

Without a signature, the document is not valid. You can only debit your customer’s account after receiving their completed mandate.

In e-commerce, the mandate is usually electronic and completing it is a mandatory part of the checkout process. The customer must provide their name, address, and bank account details. A signature is not required.

What are the advantages of using SEPA Direct Debit?

  • SEPA Direct Debits are fast, safe, and straightforward.

  • There is no limit on the transfer amount or frequency as long as it matches the mandate. 

  • You can collect payments throughout the SEPA area easily. 

  • It gives you better control of your cash flow because you aren’t waiting for customers to remember to pay their bills.

  • Less administrative work than customer-initiated transactions because there’s no need to chase late payments.

  • SEPA Direct Debits are usually free of charge for the customer and business.

When not to use SEPA Direct Debit

The main risk in using SEPA Direct Debits is the risk of chargebacks. Customers can initiate a chargeback via their bank up to eight weeks after a payment is taken. A reason is not necessary, though usually one is given. They can get a refund up to 13 months after the withdrawal if the mandate is missing.

A wire transfer is a safer choice for businesses that deal with property, investments, or other high-value assets.

What is a Creditor Identifier?

Every creditor must apply for a Creditor ID before they can collect direct debit payments. The credit identifier means banks can verify transactions, ask for funds, and regulate the direct debit mandate if needed. Also, the payer can confirm whether their mandate is accurate.

How do you cancel SEPA Direct Debit?

Both the business and the customer can cancel a direct debit at any time. If you’re operating a business, you can do this manually via your payment processor or set up an automatic cancellation when a certain date or number of payments has been reached.

Once you’ve cancelled the direct debit, it’s your responsibility to store the cancellation documents. Normally this information can be stored by your payment processor.

Benefits of Mollie for SEPA Direct Debit payments

If you’re running an online business, you need to be able to easily manage direct debits for your customers. With Mollie, you can activate SEPA Direct Debit in your account with ease. We also offer GDPR-compliant data storage, automated processes, customisable dashboards, and real-time reports to help you make business critical decisions at speed. Our effortless payments solution also comes with a range of powerful plugins to suit all your business needs. 

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