As a business, you want your payment processes to be as simple and efficient as possible. To achieve that, you should understand how a SEPA Direct Debit actually works. In this article, you will learn how your customers can grant and revoke a SEPA Direct Debit authorisation. Here's what you need to know.
What's in this article?
- What is SEPA Direct Debit authorisation?
- Direct debit authorisation, SEPA mandates and SEPA Direct Debits – how do they differ?
- How can customers grant SEPA Direct Debit authorisation?
- How can customers revoke SEPA Direct Debit authorisation?
What is SEPA Direct Debit authorisation?
Direct debit authorisation gives businesses permission to set up SEPA Direct Debits, one of the most secure payment methods, to collect payments. Instead of customers transferring funds directly to the business, the business can debit the relevant funds from the customer's account. When customers authorise the business to collect SEPA Direct Debits, it simplifies the payment process for both parties.
Direct debit authorisation, SEPA mandates and SEPA Direct Debits – how do they differ?
Direct debit authorisation, SEPA mandates and SEPA Direct Debits are all processes that simplify customer payments for products and services.
Direct debit authorisation is well-established and helps customers to manage regular payments from their accounts. However, there are a few statutory provisions related to data protection that need to be observed. With SEPA Direct Debit authorisation, only the payee is entitled to debit the funds.
The SEPA Direct Debit mandate, on the other hand, was introduced to make payment processes across Europe more seamless. It takes the form of a written declaration by the customer giving permission for SEPA Direct Debits to be collected from their account. A SEPA mandate is required for the credit institution to debit the account in the case of a SEPA Direct Debit. It is more strictly regulated than SEPA Direct Debit authorisation, thus guaranteeing a higher level of security for your customers.
A SEPA Direct Debit is ultimately a pre-authorised payment collection process. It enables you to collect the amount due directly from the customer's bank account. Again, strict statutory protections apply to ensure a smooth transaction.
How can customers grant SEPA Direct Debit authorisation?
Direct debit authorisation makes payment processes more efficient and cost-effective. But how do customers grant SEPA Direct Debit authorisation for a SEPA Direct Debit process?
You need to begin by preparing a SEPA Direct Debit mandate that includes the name of the payee, the creditor identification number and the account details of the person making the payment. Once the mandate has been prepared, the customer can either sign it electronically or on paper, and return it to your business. It is important that the customer reads the mandate thoroughly and checks whether it grants SEPA Direct Debit authorisation permanently or on a one-off basis. This is easy to do with Stripe, which enables you to start collecting SEPA Direct Debits quickly.
As a business, you must notify the customer before debiting the relevant amount from their account. This pre-notification should include all of the relevant information, such as the actual amount and the collection date. Customers are entitled to revoke SEPA Direct Debit authorisation at any time. To do so, a customer simply needs to provide written notice requesting that no further SEPA Direct Debits are collected from their account.
Granting SEPA Direct Debit authorisation offers many benefits for businesses and their customers. Discover how subscriptions can also be processed conveniently by SEPA Direct Debit.
How can customers revoke SEPA Direct Debit authorisation?
To revoke SEPA Direct Debit authorisation, customers simply need to inform their bank in writing, indicating a reason for cancelling the authorisation. The bank will then inform the business of the cancellation and will not collect any further payments, or it will return the amount in question. You should give your customers a relevant mechanism to cancel a SEPA Direct Debit quickly and easily. This also includes providing clear communication regarding the cancellation process, in addition to displaying the relevant information on your website or in any contracts.
The following information is required for cancellation:
- Name and address of the customer
- Name and address of the contractual partner
- Date and place
- Customer number and/or contract number or other identification number
After the SEPA Direct Debit authorisation has been cancelled, the contract shall remain with the company and the customer must pay or transfer the funds using another method. An approved SEPA Direct Debit can be cancelled within eight weeks of the mandate being granted, without needing to state a reason, and the amount will be returned accordingly.
A smooth cancellation process improves confidence in your business and can lead to customers purchasing your products or services again in the future.
When does SEPA Direct Debit authorisation end?
SEPA Direct Debit authorisation generally expires when a contract ends. It expires automatically 36 months after the first SEPA Direct Debit was made, if no further SEPA Direct Debits are processed or if 36 months have passed since the last SEPA Direct Debit was made. To avoid interest on an overdue amount, customers must either grant a new mandate or ensure that they transfer any sums owed on time.
In addition, businesses should be aware that strict guidelines apply for processing SEPA Direct Debit authorisation, in accordance with the EU Payment Services Directive (PSD2). These include a special notification obligation incumbent on businesses with regard to their customers. Businesses must comply with all applicable provisions when handling such mandates. This is the only way to ensure that everyone involved acts in a lawful manner and to guarantee that the process runs smoothly.