In the business-to-consumer (B2C) sector, direct debits have long been part of everyday life—whether for streaming subscriptions, cell phone bills, or ETF savings plans. However, automatic collection of payments between businesses can also be useful. In this article, you will learn what a SEPA B2B Direct Debit is, how it works, its advantages and disadvantages, and how it differs from a SEPA Core Direct Debit.

What’s in this article?

• What is a SEPA B2B Direct Debit?
  
• How does a SEPA B2B Direct Debit work?
  
• How is a SEPA B2B Direct Debit different from a SEPA Core Direct Debit?
  
• What are the advantages of a SEPA B2B Direct Debit?
  
• What are the disadvantages of a SEPA B2B Direct Debit?
  

What is a SEPA B2B Direct Debit?

A SEPA B2B Direct Debit (the SEPA Direct Debit specially designed for business-to-business transactions) is a type of direct debit within the SEPA area. The equivalent for payments between private individuals and businesses is the SEPA Core Direct Debit—the second most common SEPA Direct Debit.

SEPA B2B Direct Debits offer businesses a simple and efficient option for receiving both one-off and regular payments (e.g., for subscriptions, memberships, or recurring services). The only requirement is that the business customer has given its authorization. This allows businesses to collect money from bank accounts in SEPA countries without having to make separate agreements with the respective banks.

What is SEPA?

SEPA is the Single Euro Payments Area, which has been applying standardized procedures for electronic credit transfers and direct debits since 2014.

The different national payment systems—for example, the electronic direct debit system in Germany—were replaced by SEPA. The objective was to create unified standards and processes to make cross-border transactions just as simple and inexpensive as domestic payments.

How does a SEPA B2B Direct Debit work?

A SEPA B2B Direct Debit requires a valid mandate: business customers making a payment must give the business permission to collect payments from their bank account. The SEPA Direct Debit mandate includes the customer’s name and address, International Bank Account Number (IBAN) and Bank Identifier Code (BIC), and the amount and date of the debit. This mandate can be used for one-time or recurring payments, and it should be written in the payer’s native language. However, it may also be written in English. Since it is a legally binding document, the mandate must be signed physically or digitally by the payer.

It is possible to withdraw authorization at any time. The amount due can also be changed at any time. This only requires an amendment to the current mandate—a new mandate doesn’t need to be created. Once issued, the mandate is generally valid indefinitely. However, it expires if it is not used for 36 months. In this case, the mandate must be extended or renewed in writing.

Before the first direct debit, businesses must send their customers advance notice of the upcoming direct debit collection—at the earliest two weeks before the money is collected and at the latest one day before. Advance notice or prenotification can be sent by post, email, text message, or telephone. It must contain the exact amount, the collection date, the mandate reference, and the creditor ID. The creditor ID is a unique identification number assigned to every business that collects money by direct debit. The creditor ID gives the payer or the payer’s bank the opportunity to check that the direct debits are correct and, if necessary, to lodge a complaint or request a refund. For recurring direct debits that are always for the same amount, it is sufficient to send a one-time advance notification, but this should indicate the future due dates.

Once the mandate has been granted and the advance notice has been sent, the business can arrange the B2B Direct Debit. The corresponding order for this is issued to the business’s bank. The other party’s bank checks and processes the transaction and finally settles the payment. The amount to be paid is debited from the customer’s account and credited to the business’s account. The final step is for the business to notify the customer that the direct debit has been processed and send an invoice or confirmation by email.

How is a SEPA B2B Direct Debit different from a SEPA Core Direct Debit?

SEPA B2B Direct Debits and SEPA Core Direct Debits differ because the former are intended for B2B transactions and the latter for B2C transactions. Another significant difference is the way the respective mandate is checked. With SEPA Core Direct Debits, the business’s bank only checks whether a direct debit mandate exists, but with a B2B Direct Debit, the content of the mandate is also checked for accuracy. A copy of the mandate is sent to the bank for this purpose.

This more detailed check of the mandate results in another difference. As the bank or the payment providers of the paying business must check the details of the mandate, there is no option to object to a B2B Direct Debit. Once money has been collected, it is gone. This is different with the Core Direct Debits, which can be contested within eight weeks of the direct debit being collected. This means if money is incorrectly withdrawn, it may be credited again. If a direct debit is made without a valid SEPA mandate, the payer can still request a refund 13 months after the direct debit is collected. Find out more about the different deadlines for B2B and Core Direct Debits.

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What are the advantages of a SEPA B2B Direct Debit?

SEPA B2B Direct Debits are an efficient and cost-effective way of receiving regular payments from customers, and they offer businesses the following advantages:

• Security: As customers have to agree to the direct debit and their banks check the details of the mandate, the process is very secure. In theory, incorrect transactions are highly unlikely.
  
• Efficiency: Businesses can use SEPA B2B Direct Debits to automate parts of their payment process. Customers making payments also no longer have to make manual transfers. This saves time and resources on both sides.
  
• Lower costs: After the initial setup, there is practically no administrative work required for B2B Direct Debits. This makes them very affordable.
  
• Reduced error rate: As less manual work is required for direct debits than for individual transfers, the chance of errors is minimized. This also saves resources that would otherwise have to be used for corrections.
  
• Low nonpayment risk: As the money is automatically debited from the customer’s account for recurring payments, the risk of nonpayment is greatly reduced—especially compared to other payment methods such as bank credit transfers. Beyond this, direct debits that have been made are not refundable. This is an advantage for the payee.
  
• Improved cash flow planning: B2B Direct Debits offer businesses a better overview of their incoming payments. The regular income also enables the business to make plans with regard to cash flow.
  
• Customer satisfaction: B2B Direct Debits are also a convenient payment method for businesses making payments. The payment is processed automatically and there is no need to transfer the money manually. A smooth process can increase customer satisfaction.
  

What are the disadvantages of a SEPA B2B Direct Debit?

In addition to many advantages, the following section explains some of the potential disadvantages of SEPA B2B Direct Debits:

• Availability: Not all banks offer the service or it may be subject to specific requirements, procedures, or fees. The business making the payment should therefore find out whether SEPA B2B Direct Debits are possible with its bank and, if so, how they can be carried out.
  
• No cancellation option: It is not possible to cancel SEPA B2B Direct Debits, unless the payment was not authorized. As a result, businesses that have had money debited from their accounts because they have wrongly issued a mandate have no legal recourse. The money does not have to be refunded.
  
• Possible rejection of payments: If the businesses making payments do not have sufficient funds in their account, a B2B Direct Debit may be rejected or blocked by the bank. This can interrupt the payment flow and lead to additional expenses for the businesses involved.
  

Below you will find an overview of the above advantages and disadvantages of SEPA B2B Direct Debits.