The SEPA Direct Debit (‘SDD’ or ‘European direct debit’) is the direct debit system used within the European Union, Iceland, Liechtenstein, Norway, Switzerland and Monaco.
How does it work?
- The creditor or biller signs a European direct debit contract with its bank.
- The debtor or payer provides the biller with a mandate authorising collection of the receivables from a specified account.
- Before collecting the payment, the biller sends the payer a pre-notification not later than 14 calendar days prior to collection (unless a different period has been agreed). The pre-notification includes the date and amount of the collection and may be communicated in an invoice or similar document. In the case of repeat transactions, the biller can send a direct debit plan including several collection dates and the agreed amounts. Separate advance notification is required for any significant change (new amount, new collection date, etc.).
- To proceed with the collections, the biller sends the bank a collection file containing the details of the transactions along with the electronic data for the relevant payers’ mandates.
- The biller’s bank requests collection from the payer.
- The payer’s bank debits the amount directly from the payer’s account.
- The money is paid into the biller’s account.
- Always on time: the European direct debit means you can be sure your receivables will be paid promptly.
- Simplicity: the standardised process reduces the amount of work for your back office. Once the payer’s details have been set up, all you have to do is enter the amount and the message, and the bank will execute your requests.
- Automation: you can automate your management processes, thanks to the exhaustive and detailed reporting of the transactions (delivered in CODA format).
- Debit date = credit date: the biller’s account is credited on the date that the payer’s account is debited.
- Greater predictability: you are paid according to a fixed timetable. You can manage your cash flow more effectively.
- Straightforward reconciliation, management of unpaids: collections are performed by a single bank.
Good to know
- SDD comes in two different schemes:
A Core or B2C (Business to Consumer) scheme for billers whose payers are consumers and professionals; in this context, debtors have access to the banking mobility service (Bankswitching) allowing them to change banks. Creditors then receive their debtors' new bank details automatically.
- A B2B (business to business) scheme, intended solely for billers whose payers are professionals (banks are not obliged to offer this to their clients).
- The main differences between the two schemes are as follows:
- Unlike B2B, the B2C scheme offers the payer the right to reimbursement of a transaction up to eight weeks after debit;
- In the case of B2B, the payers also have to confirm the mandate with their bank;
- The periods after execution are shorter in the B2B scheme;
- The period prior to execution has now been standardised and applies to the Core scheme, for both the first and subsequent transactions, as well as to the B2B scheme: the collection file has to be sent to the bank one day before the due date.
- No limit is imposed on the amount.
- European direct debits have to respect the following SEPA standards:
- The International Bank Account Number (IBAN) is used as the sole identifier of the banks and accounts;
- The debit orders must respect the ISO20022 UNIFI standard, which uses the Extended Markup Language (XML) supported by Isabel 6 and all other BNP Paribas Fortis channels.