SEPA Direct Debits

As a ‘local’ payment instrument for the entire Eurozone, the SEPA direct debit will, by 2014, replace today’s many different national direct debit schemes. For the cross-border collection business, this is a significant development since before there has not been a standardized pan-European product for direct debits. 

SEPA direct debit transactions are based on a direct debit mandate, which the debtor (payer) gives to the creditor (payee). The latter submits the direct debit to his bank for collection. The direct debit data includes certain mandate data (e.g. mandate ID).

Key Features of SEPA Core Direct Debit include:

• Allows for domestic and cross-border direct debits
• IBAN and BIC replace national account numbers and sort codes
• The SEPA direct debit is a collections process based on a mandate signed by the debtor and presented to the creditor
• This mandate is standardized in content and must be issued in the debtor's contract language
• New data elements:
  -  A unique mandate number (mandate ID) to be assigned by the creditor
  -  A centrally assigned creditor identifier
  -  Dedicated optional creditor reference field (end-to-end reference)
  -  Dedicated optional on-behalf-of fields
  -  Optional purpose and category purpose codes
• The SEPA XML format is binding for the exchange of payments between banks (however, banks may continue to accept other formats from customers for the instruction of SEPA payments)
• Execution times:
  -  Direct debits will have a due date to be assigned by the creditor, which is the date on which the
     debtor is debited
  -  The date and amount of the direct debit is communicated to the debtor no later than 14 calendar
     days prior to the due date (however, other notification periods can be agreed on)
  -  Initial direct debits or one-off direct debits must be sent to the bank no later than five business days prior to the
     due date
  -  Subsequent direct debits must be sent to the bank no later than two business days prior to
     the due date
  -  Any returns by the debtor bank (e.g. if the account has been closed) must be effected no later
     than five business days after the due date
  -  The debtor can return authorized direct debits for up to 8 weeks after the due date
  -  Unauthorized direct debits (for which the debtor has not signed a mandate) can be returned up to
     13 months after the due date
  -  The mandate expires 36 months after the last initiated direct debit