SEPA Direct Debit: Definition, Process, and How It Works
A SEPA direct debit is a payment method in which you collect a due amount directly from your customers’ bank accounts with their consent. It is based on a SEPA direct debit mandate. The process operates uniformly throughout the SEPA area and is processed via the IBAN. It is particularly well-suited for recurring payments.
At a Glance
- Every SEPA direct debit is based on a mandate: your customers' consent to the debit.
- There are two types: the SEPA Core Direct Debit for individual customers and businesses, and the SEPA Business-to-Business Direct Debit, which is used only between businesses.
- With a standard direct debit, individual customers can dispute a charge within eight weeks without providing a reason.
- This method is suitable for recurring payments such as subscriptions, memberships, or regular payments.
How does a SEPA direct debit work?
Your customers grant you a SEPA direct debit mandate, thereby authorizing you to collect payments from their accounts. You submit the direct debit to your bank, which debits the amount from your customers’ accounts via the SEPA system and credits it to your account. For recurring payments, the mandate is valid indefinitely; a new one is not required.
In the process, the MoR is responsible for:
- payment processing (credit card, SEPA, PayPal, Klarna, and other methods),
- the reporting and payment of the correct sales tax of the buyer's country,
- the legally compliant invoice,
- the payment of the net proceeds to the creators,
- Chargebacks, refunds, and tax filings.
What does a SEPA mandate include?
A SEPA direct debit mandate authorizes the collection of funds and identifies the parties involved. This includes your name as the payee, your creditor identification number, a mandate reference, and your customers’ IBANs. The mandate may apply to a one-time payment or to recurring debits and is issued in writing or electronically.
Background: For cross-border B2C sales of digital services, sales tax is due in the customer’s country as soon as the EU-wide threshold of 10,000 euros net per year is exceeded. Due to the combined volume, a MoR practically always exceeds this threshold. For B2B sales with a valid VAT ID number, the reverse-charge procedure applies, and the MoR does not charge sales tax in such cases.
What is the difference between a standard direct debit and a corporate direct debit?
The SEPA Core Direct Debit is available to both individual customers and businesses and grants individual customers an eight-week right to object. The SEPA Business-to-Business Direct Debit applies only between businesses. In this case, the payer’s bank verifies the mandate in advance, and once the payment has been collected, it cannot be reversed.
Characteristic
SEPA Core Direct Debit
SEPA Business-to-Business Direct Debit
For whom
Individual customers and businesses
only between businesses
Objection After Collection
8 weeks without explanation
not possible
Without a valid mandate
Returns accepted up to 13 months
Returns accepted up to 13 months
Verification of the payment order by the payer's bank
no
Yes, first of all
Real-world example
Sarah offers a membership with a monthly fee. Upon purchase, her customers provide a SEPA Core Direct Debit mandate. After that, Sarah automatically collects the fee each month without having to request payment each time. If she accidentally debits the wrong amount, her customers can dispute the charge within eight weeks.
ablefy classification
With ablefy, your customers can pay via SEPA direct debit at checkout, in addition to credit cards, PayPal, and other methods. For recurring payments such as subscriptions or memberships, the payment is then automatically processed using the on file authorization. You don’t need to set anything up with your bank, though. The entire process is handled by ablefy. Learn more at ablefy.
Common Misconceptions
- “A direct debit authorization and a SEPA mandate are two different things.” The SEPA mandate replaced the former direct debit authorization in 2014.
- "I can reverse a corporate direct debit just like any other direct debit." No. Once a corporate direct debit has been collected, it cannot be reversed.
- "A new authorization is required for each recurring payment." Once a direct debit authorization has been granted, it applies to all subsequent direct debits.
- "If the amount changes, the authorization becomes invalid." The authorization remains valid even if the amounts change.
Frequently Asked Questions
What is a chargeback?
A chargeback occurs when a debit transaction cannot be processed, such as due to insufficient funds or a dispute. The amount is refunded, and fees may apply.
What is the creditor identification number?
A unique identifier that you, as the payee, need for SEPA direct debits. In Germany, it is assigned by the Deutsche Bundesbank.
Can I also collect payments via SEPA direct debit in other EU countries?
Yes. Within the SEPA area, the process works uniformly across countries using the IBAN.
What is the difference between a SEPA direct debit and a standing order?
With a direct debit, you collect the amount. With a standing order, your customers instruct their own bank to transfer a fixed amount on a regular basis.
