The key questions up front
SEPA Direct Debit is simply a payment, from one party to another.
However, the main difference between what is generally considered a payment, where someone logs onto their banking portal to send money to a 3rd party, is that with direct debit the receiving party instructs their bank to submit a request to take the funds from the payer’s bank account on a particular date. It's important that the payer is aware of this before funds are debited.
In order to debit a customer's account, the customer must sign a SEPA Direct Debit mandate authorising the transaciton or series of tranactions. Signing can be in the form of wet ink on paper or electronic.
There are protections in place at the SEPA Direct Debit scheme level to protect the payer where funds are debited wihtout authorisaiton.
For a start SEPA Direct Debit can be used to debit your customer's account once, or once every so often, or it's used to collect on a recurring basis. The latter is a common use case, where an ongoing service is being delivered and service/maintenance fees need to be collected on a recurring basis.
We see numerous different types of business using direct debit ranging from property services and distribution to professional services and leisure, it varies greatly.
To discover if direct debit is suitable in your business just speak with us, we'll go through how the service might be of value to you.
Some terminology is useful at this point:
In order to collect funds via SEPA Direct Debit a business needs access to the SEPA network.
This is referred to as the SEPA Direct Debit scheme and access to this scheme is made possible by Financial Institutions (banks) that have direct access. When approaching your bank for this access they are effectively "sponsoring you" onto the schme. As part of granting access your business is assigned an OIN (SEPA Direct Debit Originator Identifier Number). This is a unique ID that identifies your business on the scheme and is linked directly to your IBAN where the funds are credited when the direct debit is processed.
Important point:
When you request access your bank will want to know the value of the collections per month. There's a very simple reason for this. Under the scheme the payer (your customer) has a right to refund for up to 8 weeks after collection. As a result, the sponsoring bank carries credit and operational risk on behalf of the merchant (your business) because it remains liable for refunded transactions and must ensure the merchant can cover any chargebacks or disputes. If you're familar with the card payment scheme you'll see the similarities here with regards to the risk piece.
Last point and of potential value:
When approaching your bank for this access take a realistic view of your projected volumes.
For example, if you aim to collect 100k per month on direct debit from 50 clients, it's unlikely you will secure signed SEPA Direct Debit mandates from all 50 on day1. You can plan this change, maybe request access initially to collect 40k per month in the first 3-4 monhts. As volumes grow and the bank gets to see the recurring revenue you then request the increase to the full 100k. This approach may help the bank to de-risk their side, you effectively work togehter. We've seen numerous customers take this approach, over time collecting a large proportion of income via direct debit.
1. Getting paid on time. This is critical. We have first hand knowledge here, it's part of why we created the business. Waiting for payment, chasing people and the uncertainty, it's stressful. Getting paid on time gives you options, be it to invest in the business, buy materials or simply pay off debt. You're in control.
2. Solid cashflow. Knowing when cash is due in is a serious advantage. You can plan spending, you can show proof of funds and have a line of sight on cashflow should you need to raise capital.
3. Space in mind. Many of our customers remember what life was like prior to introducing direct debit, it's a fantastic means of assisting the Credit Control function in any size of company. Helen and her team in our short explainer video can vouch for that.
Our focus is on Irish organisations so let's look at the industry.
The first recomendation is to speak with us to learn more about the process as it needs to be handled properly and clearly from the start. Bank staff change in branchs and it's critical that the requst is communicated clearly to avoid misunderstandings.
There are 3 traditional banks in Ireland providing SEPA Direct Debit scheme access to their customers; AIB, Bank of Ireland and PTSB. We suggets a 2-pronged approach:
1. Speak to your local branch and raise the ask - "I want to collect our income via SEPA Direct Debit".
2. Call your Business Banking Support line and raise the same request.
You'll need to complete a relatively straight forward application form. We're familiar with these forms and can help, it's vital these are completed properly to avoid unnecessary delays.
Inflection point
SEPA Direct Debit is a highly valuable means of collecting income, there is nothing better in terms of efficiency and cost. Your bank provides access to the scheme but your business is the party that derives the most value. There's an application process, it can take time, keep the goal front of mind as your operation will change dramatically when you automate your income collection.
The mandate is simply an authorisation by your customer to debit their account.
There are a few ways to capture this authorisation; by phone, emandate or paper mandate.
DebaPay supports both emandate and paper mandate.
Emandate
Your customer receives a link to an on-line form where your logo is displayed along with all the required fields they need to complete. On approval (submission of the mandate data) they receive an email confirmation. All the relevant data is captured in line with the guidelines provided by the Banking & Payments Federation of Ireland (BPFI).
Paper mandate
Similar to the emandate but a little more retro. In this case you would present a paper form to your customer and they add the required details, their name and IBAN etc. You would then enter these details on DebaPay which sets up the system to enable you to collect from their account.
We also see many customers using document signing solutions to capture their customer's authorisaiton.
DebaPay helps businesses collect payments using SEPA Direct Debit through a secure cloud platform, giving you control over your collections while keeping your existing banking relationship. You can choose between two ways of working:
Direct — You manage your collections using the platform and generate the SEPA Direct Debit XML files for submission to your bank. You monitor direct debit runs and ensure any failed payments are identifed by accessing your bank portal.
Managed — We operate the collection process for you, handling submission and day-to-day operations along with monitoring and reporting to enusre your direct debits run smoothly and reliably.
DebaPay is an independent SEPA Direct Debit & Credit Transfer platform built for businesses that want reliable direct debit collections and/or controlled payment runs for salaries and supplier payments.
Since 2015 we’ve helped organisations run direct debit operations with confidence, combining deep SEPA experience with flexible service options.
Choose Direct or Managed with predictable costs while keeping your bank relationship.
Some other interesting questions
SEPA Direct Debit collections are based on debit dates, the date the money leaves your customer account and credits your account.
Example: in order to collect from your customers on the 5th of the month, the collection instructions must get to your bank 2 days in advance.
The bank processes the SEPA Direct Debit requests submitted, the funds leave your customer's account on the 5th and credits your account (the account of the receiving party) directly.
Worth noting, DebaPay does not hold the funds at any point.
Collections fail for various reasons such as the customer's account being closed or where sufficent funds are not available in the account on the debit date. There are numerous other reasons.
For customers operating on the Direct service they access their bank portal to identify the details of the payer and cause of the failed collection.
Customers on the Managed service are notified of any failed collection and its cause and are suported through dealing with any non-standard failure reasons.
This typically depends on the setup of the payer's bank account. If the account is setup such that all authorisers on the account must sign it is necessary to capture both signatures via paper mandate. This is typically discovered when asking your customer to complete the mandate.
This really comes down to your relationship with your customers and how you introduce SEPA Direct Debit. It's a highly efficient service for both parties, one just needs to make sure the permission to debit a customer's account is not abused.
When introducing any new service it's important to be clear in communicating how it's going to work, what's expected from your customer and even more important what your customer can expect from you.
The clearer the communication the better the result. Look to secure buy-in from the off, transparency is key:
"We're moving to SEPA Direct Debit and requst you to sign up to this"
"..we'll collect from you on this date"
"..we'll advise you of any changes to the amount being collected where necessary",
"cancelling this is not a problem if necessary"
It's beautiful when it's done right.
A common misunderstanding with people looking to employ recurring payments to collect their income is that a Standing Order (SO) is a direct debit. While they are similar in that both result in funds being received there are some critical differences:
1. With SOs the funds are pushed from the payer's account to the merchant's account whereas with SEPA Direct Debit the funds are pulled from the payer's account by the merchant. With SO the payer sets the amount and the date of the payment, both values cannot be changed. Change to either means the SO is cancelled and setup once again with the new details, it's a headache.
2. With direct debit the merchant sets the amount to be debited from the customers account, this is the critical element as it allows the merchant to pull what's due.
3. Where a direct debit collection fails to collect the merchant discovers this by seeing the colleciton failing, this is not the case with Standing Order. This might sound like a small aspect but continuous watching for payments to arrive is time consuming whereas with direct debit you can manage by exception.
We add to this list from time to time as we listen to our customers and review industry developments.
Please feel free to contact us should you need to ask us anything, simply click the following button or call us on 0906400199.