What is SEPA Direct Debit?

SEPA Direct Debit (SDD) is a cashless direct debit in euro carried out based on a payment order. SDD can be used to pay rent, road tolls, subscriptions and insurance premiums. SDD is also a suitable way for businesses to settle their financial obligations and manage cash flow.

The main benefits of SEPA Direct Debit are as follows:

• ll direct debit orders within the EEC can be sent from only one account. Therefore, clients do not need to have accounts in different countries or, by extension, communicate with other banks and fill in various direct debit orders or keep track of due dates. Notification of a direct debit must be given 14 days in advance of the due date by the payer, e.g., by invoice, unless agreed otherwise in advance.
• SEPA Direct Debit is not the release of funds in favour of recipients’ accounts, but in favour of creditor identifiers (CID). Therefore, to facilitate cash flow management, the recipient can send direct debits from various accounts or from a single account as needed.
• The processing of an SDD differs from the existing Czech model, where the recipient waits for payment or rejection for up to five business days. Under SEPA Direct Debit the funds are received without rejection on the requested settlement date (which is a benefit for cash flow management).

Using SDD is preceded by the payer granting a SEPA Direct Debit Mandate to the recipient. The SDD Mandate contains information about the payer and recipient, the creditor identifier (CID), and a Unique Mandate Reference (UMR). The payer then arranges access to his account for SDD. Some banks make accessing the funds conditional on signing a SEPA Direct Debit Consent. Recipients activate the service for sending SDD orders after signing the relevant agreement at their bank.

For this method of payment to best correspond to clients’ needs, there are two types of SEPA Direct Debit (payment schemes):

Consumer SEPA Direct Debit (SDD CORE)

• Direct debit in euro is intended for settling obligations between consumers (individuals) and legal entities.
• Guarantees that an authorised direct debit payment will be returned to the payer upon request (no reason needs to be given) if the request is made within eight weeks of the direct debit payment being debited from the payer’s account. In the event of an unauthorised payment, the period to claim a dispute is extended to 13 months.
• The rules allow payers to give their bank general consent to direct debits, i.e., they need not give individual consent for each direct debit, unless agreed otherwise with the bank.
• The first direct debit order for processing has to be delivered to the payer’s bank at least five business prior to the requested due date, subsequent direct debit orders at least two banking days prior to the due date.

Business to Business SEPA Direct Debit (SDD B2B)

• Direct debits in euro are exclusively for non-individual entities.
• The payer is not entitled to request the return of authorised direct debit payments.
• Direct debits have to be delivered to the payer’s bank for processing at least one banking day prior to the due date.