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 authorization. Here’s what you need to know.
What’s in this article?
- What is SEPA Direct Debit authorization?
- Direct debit authorization, SEPA mandate, and SEPA Direct Debit: how are they different?
- How can customers grant SEPA Direct Debit authorization?
- How can customers revoke SEPA Direct Debit authorization?
What is SEPA Direct Debit authorization?
Direct debit authorization 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 authorize the business to collect SEPA Direct Debits, it simplifies the payment process for both parties.
Direct debit authorization, SEPA mandate, and SEPA Direct Debit: how are they different?
Direct debit authorization, SEPA mandate, and SEPA Direct Debit are all processes that simplify customer payments for products and services.
Direct debit authorization is well-established and helps customers manage regular payments from their accounts. However, there are a few statutory provisions related to data protection that need to be observed. Only the payee is entitled to debit the funds with SEPA Direct Debit authorization.
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 authorization, guaranteeing a higher level of security for your customers.
A SEPA Direct Debit is ultimately a pre-authorized 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 authorization?
Direct debit authorization makes payment processes more efficient and cost-effective. But how do customers grant SEPA Direct Debit authorization for a SEPA Direct Debit process?
You need to start off 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 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 authorization permanently or on a one-off basis. You can do this easily with Stripe and 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 authorization at any time. To do so, a customer simply needs to give written notice requesting that no further SEPA Direct Debits be collected from their account.
Granting SEPA Direct Debit authorization 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 authorization?
To revoke SEPA Direct Debit authorization, customers simply need to inform their bank in writing indicating a reason for canceling the authorization. The bank will then inform the business of such cancellation and not collect any further payments, or return the amount in question. You should give your customers a relevant mechanism to cancel a SEPA Direct Debit simply and quickly. This also includes providing clear communication regarding the cancellation process and as well as 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 SEPA Direct Debit authorization has been canceled, 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 canceled 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 repurchasing your products or services in future.
When does SEPA Direct Debit authorization end?
SEPA Direct Debit authorization 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 36 months after the last SEPA Direct Debit was made. To avoid interest on an overdue amount, customers must either grant a new mandate or ensure they transfer any sums owed on time.
In addition, businesses should be aware that strict guidelines for processing SEPA Direct Debit authorization apply in accordance with the EU Payment Services Directive (PSD2). These include a special notification obligation incumbent on businesses in respect of 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.