SEPA Direct Debit payments: How they work and their benefits for businesses


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  1. Introduction
  2. How do SEPA Direct Debit payments work?
  3. What is a SEPA Direct Debit?
  4. What is the difference between a SEPA Direct Debit and a standard direct debit?
  5. What are the benefits of SEPA Direct Debit payments for businesses and customers?
  6. How can businesses set up SEPA Direct Debit payments?

Both businesses and customers can benefit from SEPA Direct Debit payments. SEPA Direct Debits generated approximately €3,435 billion in revenue in 2021. Read on to learn how SEPA Direct Debit payments work and how they differ from standard direct debits. We will also explain what you need to do as a business to accept them and how you can set up the process more easily.

What's in this article?

  • How do SEPA Direct Debit payments work?
  • What is a SEPA Direct Debit?
  • What is the difference between a SEPA Direct Debit and a standard direct debit?
  • What are the benefits of SEPA Direct Debit payments for businesses and customers?
  • How can businesses set up SEPA Direct Debit payments?

How do SEPA Direct Debit payments work?

SEPA stands for "Single Euro Payments Area". SEPA Direct Debits are a secure and reliable payment method that has been developed specifically to process payments within the European Union. It is used to process cashless payment transactions by almost all EU member states.

Businesses can process payments quickly and easily via SEPA Direct Debit by withdrawing the invoice amount directly from the customer's account. This process allows customers to plan incoming payments and diversify their sources of income.

Businesses only need a direct debit authorisation from the customer, also known as a direct debit mandate. The customer enters their bank information while the business shares the amount, time and other necessary information. Once all the data has been checked, the bank gives the business approval to debit the amount from the customer's bank account. This is debited within eight days of the due date. Businesses need to pay attention to the exact deadlines and time processes for submitting a SEPA Direct Debit, notifying the customer and for chargebacks.

What is a SEPA Direct Debit?

A SEPA Direct Debit is a reusable, delayed notification payment method.

There are two types of SEPA Direct Debit payments: a core SEPA Direct Debit and a SEPA Direct Debit for business. The core SEPA Direct Debit is comparable to former direct debit authorisations and is usually used to process customer payments. A SEPA Direct Debit for business, however, is usually used for transactions between businesses. Compared with a core SEPA Direct Debit, it is not possible to reverse an authorised payment made via SEPA Direct Debit for business. For both types of SEPA Direct Debit payments, there are differences between one-off direct debits, first direct debits and recurring direct debits.

What is the difference between a SEPA Direct Debit and a standard direct debit?

Unlike SEPA Direct Debit payments, a conventional direct debit can only be taken from within the account holder's country, meaning that this process is restricted to country-specific transactions. Direct debit authorisations, a subcategory of direct debits, are also common. For direct debit authorisations, only the recipient is authorised to collect the payment, not the bank.

What are the benefits of SEPA Direct Debit payments for businesses and customers?

SEPA Direct Debits are faster and more efficient than standard direct debits. One of the biggest benefits for businesses is that the administrative work associated with payments and accounting is reduced because the customer's account is debited automatically, eliminating the need for manual transfers. The unified process means that businesses only need to manage one bank account in their system and can accept payments throughout Europe. This allows payments to be processed more quickly as they are debited directly from the customer's account and are registered as confirmed transactions immediately. The risk of error is also minimised because less manual intervention is required. This saves on time and costs that can be invested into other important business areas.

SEPA Direct Debits also offer businesses a better overview of their incoming payments. This is particularly helpful for recurring payments, such as subscriptions or memberships. SEPA Direct Debits enable businesses to know exactly when certain amounts will be debited.

In addition, the process offers a higher level of security, as payments can be identified using a clear mandate reference, making it easier to prevent fraud. There are also strict regulations regarding chargeback and reversal periods, which protects both customers and businesses.

How can businesses set up SEPA Direct Debit payments?

In order for a business to accept SEPA Direct Debit payments, it needs an International Bank Account Number (IBAN) and Bank Identifier Code (BIC).

Because SEPA Direct Debits are taken directly from a customer's bank account, businesses must meet SEPA Direct Debit requirements. These include adhering to the European requirements of the European Union, as well as all statutory requirements of the country that the business is established in.

Businesses should also choose a certified payment service provider (PSP) that will help them set up and carry out the SEPA Direct Debit process. The payment service provider connects businesses to the customers, allowing payments to be processed effectively.

All data protection requirements also need to be adhered to in order to ensure that transactions are secure. The payment service provider is responsible for encrypting account data, as well as storing it and transferring it to the business.

If a business decides not to use a payment service provider and instead set up SEPA Direct Debit payments on its own, it will first need to register with SEPA. It will also need written approval from the customer to charge their bank account. This step requires a SEPA mandate, which will contain important information, such as bank account details and the amounts.

As soon as the business has received approval from the customer and this has been signed by both parties, it can register the SEPA Direct Debit with its bank and implement the necessary technology. We recommend working with an experienced service provider for this.

If you'd prefer to leave the details to a payment service provider, learn how you can accept SEPA direct debit payments with Stripe here.

The content in this article is for general information and education purposes only and should not be construed as legal or tax advice. Stripe does not warrant or guarantee the accurateness, completeness, adequacy, or currency of the information in the article. You should seek the advice of a competent attorney or accountant licensed to practice in your jurisdiction for advice on your particular situation.

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