SEPA Direct Debit: The Complete Guide

According to data from the European Central Bank, direct debits in the Euro zone totaled 23.2 billion euros in the year 2021, an increase of 5.8% on 2000. This makes direct debits the second most widely used cashless payment method, behind credit transfers and ahead of cards and checks.

When a company wants to take the initiative and automate the collection of its receivables, it opts for direct debit. This payment method is suitable for both one-off and recurring transactions. It helps to improve cash management and build customer loyalty.

With SEPA (Single Euro Payments Area) direct debits online, your customers have an effective solution for simplifying their collections. Treezor provides a comprehensive overview of the features and operation of SEPA Direct Debit Core and B2B, as well as a detailed explanation of the SEPA mandate.

1. SEPA direct debit types: SDD Core or SDD B2B

There are two types of SEPA Direct Debit (SDD):

• SDD Core, available to all payers;
• SDD B2B, for inter-company relations.

Both share a common set of features.

Features of SEPA Direct Debit or SDD

In concrete terms, SEPA Direct Debit enables a creditor to debit an amount in euros from a debtor’s account located in the SEPA zone. This zone comprises 36 countries:

• the 27 members of the European Union (Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden);
• the 4 EFTA (European Free Trade Association) states: Iceland, Liechtenstein, Norway and Switzerland;
• Monaco, San Marino, Andorra, Vatican City;
• the United Kingdom.

Particularly suited to recurring bill payments or subscriptions, there is no limit to the amount you can pay. Nevertheless, direct debits are subject to certain formalities and precise execution rules.

For SDD Core and SDD B2B SEPA direct debits

• Reason for payment: the transaction wording may not exceed 140 characters.
• Presentation deadline: A SEPA direct debit must be presented to the creditor’s bank between 1 and 5 bank business days before the collection date, depending on the type of direct debit.
• SEPA mandate: each direct debit contract requires a different mandate with the RUM/UMR (Unique Mandate Reference) and the debtor’s signature.
• Creditor’s responsibility: the creditor is required to have a SEPA creditor ID, and is responsible for managing and storing the original mandate.

Specific features of SDD B2B direct debits

The SEPA B2B Direct Debit Scheme has been designed for business-to-business payments, with the aim of speeding up the exchange of financial flows and improving commercial relations.

SDD B2Bs can be presented up to one business day before maturity.

The B2B direct debit is an “authorized” payment, so it is impossible to request a refund, except in the case of a fraudulent or erroneous direct debit.

2. How SEPA direct debits work

The SEPA direct debit is an interbank transaction and a payment method controlled by the creditor.

Setting up SEPA SDD Core direct debits

To transfer funds from the debtor’s account to the creditor’s account and carry out a SEPA SDD Core Direct Debit, several steps are required.

1. The creditor (or beneficiary) sends a direct debit mandate to the debtor (or payer).
2. The latter fills in his or her contact details, IBAN and BIC code. They sign it and return it to the creditor, who keeps it in a safe place.
3. 14 calendar days before the direct debit due date, and unless otherwise agreed bilaterally, the creditor informs the debtor of the date and amount of the transaction. The creditor issues the direct debit order to his or her bank, which forwards it to the debtor’s bank.
4. The transaction is finalized by debiting the debtor’s account and crediting the creditor’s account.

Setting up SEPA SDD B2B direct debits

To transfer funds from the debtor’s account to the creditor’s account and carry out a SEPA SDD B2B direct debit, several steps are required.

1. The creditor (or beneficiary) sends a direct debit mandate to the debtor (or payer).
2. The debtor enters his or her contact details, IBAN and BIC code. The debtor signs two copies of the mandate and sends them to the creditor and their own bank (the debtor’s bank).
3. 14 calendar days before the direct debit due date, the creditor informs the debtor of the date and amount of the transaction, as well as the UMR and SCI. The creditor issues the direct debit order to his or her bank, which forwards it to the CSM the day before the due date, and then to the debtor’s bank.
4. The transaction is finalized by debiting the debtor’s account and crediting the creditor’s account.

Period of validity of the SEPA direct debit mandate

The period of validity of a SEPA direct debit mandate depends on the information indicated in the mandate. The mandate may be:

• only valid for a single direct debit;
• or recurring, in which case it ends when the debtor revokes the agreement.

However, if no direct debit order is presented for 36 months, the mandate lapses.

Cancelling a SEPA direct debit

The debtor is entitled to claim repayment of the sums debited from his bank under certain conditions.

• Authorized SEPA Direct Debit (e.g. for the wrong amount): the customer has 8 weeks from the debit date to submit a request for reimbursement in the case of a SEPA Core Direct Debit. Please note: as mentioned above, it is not possible to dispute an authorized SEPA SDD B2B direct debit.
• Unauthorized or erroneous SEPA direct debit (invalidity or absence of mandate): the debtor has 13 months to contact their bank and provide the supporting documents needed to process the request for reimbursement.

Terminating a SEPA direct debit mandate

You can terminate your direct debit mandate at any time. To do so, you can contact your creditor and your bank. Simply write to the creditor to cancel the mandate by registered letter with acknowledgement of receipt. However, as a precautionary measure, you can also contact your bank to inform them of your opposition to new direct debits being issued.

3. The SEPA mandate in detail

Definition of the SEPA Direct Debit mandate

The SEPA mandate is a direct debit authorization. Without a mandate signed by the creditor and debtor, it is impossible to initiate debits on the payer’s account. The UMR is essential for individualizing SEPA mandates. This is an identification number assigned by the creditor.

Information required for debiting

The direct debit mandate is drawn up in the debtor’s language, or in English if the creditor is unable to determine the debtor’s language. The mandate must include the following information:

• the identity of the creditor;
• SEPA Creditor Identifier (SCI);
• the Unique Mandate Reference (UMR), which is the reference used to identify the mandate;
• the identity of the debtor;
• the debtor’s IBAN and BIC code. Please note: since February 1, 2016, only the debtor’s IBAN is required for transactions to countries in the European Economic Area;
• type of debit (recurring or one-time);
• the nature of the mandate (SDD Core or SDD B2B);
• the date of signature of the mandate;
• the debtor’s signature.

The SEPA mandate also includes a statement indicating that you authorize your creditor to debit your account, thereby authorizing your bank to carry out the direct debit.

4. Main differences between SEPA Core and B2B direct debits

Focus on the SEPA creditor identifier, or SCI

The SEPA Creditor Identifier (SCI) is a unique, mandatory creditor reference that must appear on the direct debit mandate.

The SCI is structured in 4 parts, and its length varies from country to country, not exceeding 35 characters. It comprises the following elements:

• the country’s two-letter ISO code (FR for France);
• two control numbers;
• the 3-letter activity code;
• the national identifier. This is the NNE (Numéro National d’Émetteur), which has 13 characters in France.

SEPA direct debits (SDD Core or B2B) offer companies a way of controlling their collections and building customer loyalty. For recurring payments or subscriptions, it considerably reduces the time spent on administrative management, and simplifies bank reconciliation. Treezor can help you set up a SEPA direct debit scheme, taking care of regulatory controls, providing the information needed to generate a direct debit mandate, customizing the SCI and managing payment flows.