Beginner's guide to SEPA Direct Debits

A lot of parties ask us how they should start with SEPA Direct Debits. We see that a bank can not always give the correct answer. That's why we bundled it in this post.

Before starting with Direct Debits, you should consider the following elements:

• You must have the agreement of your bank to do Direct Debits.
• Your customer must have signed a mandate by which he gives you permission to automatically collect the money he owes.
• You have to send the collection instructions to the bank that will do the collection. In most cases this will be done by means of eBanking tools.
• It is always possible that a collection cannot be executed because there is not enough money on the account of your customer. Keep in mind that you must follow up the collections and may have to re-send some collection instructions to your bank.

Step 1: Agreement with the bank

You must sign an agreement with the bank to be allowed to do “Core” or “B2B” Direct Debits. After that you will receive a Creditor ID from the bank. Please note that the bank may want to perform some verifications (business plan, turnover of the last few years). After all, the bank also takes a risk.

There are considerable differences between the two types of Direct Debits:

• “Core”: The agreement is concluded between you and your customer and requires no intervention from your bank. The customer can also be a business. One of the key points here is that your customer can ask the bank to refund him up to 8 weeks after the collection took place without having to specify a reason for this refund. The invoice or contract remains valid but will have to be collected in another way.
• “B2B”: These agreements are concluded between companies. The intervention of the bank is required. The customer must give his consent to the bank, after which the agreement will be transferred to you. A vital point here is that the customer must have a business account. Some banks do not allow persons exercising a self-employed complementary activity to hold a business account and therefore these persons cannot conclude a B2B agreement ( e.g. Bank Van de Post).

We encourage B2B companies to conclude both contracts with the bank so that they can do B2B as well as Core (as a backup) Direct Debits.

The speed of the execution is different for the two types of Direct Debits.

Step 2: Agreement by the customer

Once you have the agreement of the bank, you can invite your customers to sign a mandate. They can do this on paper (through a legally defined document structure!) or electronically (via Twikey).

Each mandate must have a unique “mandate reference number“. Each bank has its own formatting rules but if you make sure that each mandate has a unique number you will encounter no problems.

Some banks require a written signature on the mandate.An electronic signature is sufficient under the law and is even more legally binding.

For B2B agreements, it is important that you receive the confirmation that the agreement has been recorded at the bank of the final customer, otherwise you cannot proceed to any collection.

An agreement remains valid as long as you use it. After that, it still remains valid for a period of 36 months. An invalid signed mandate (in line with the law) can be reclaimed up to 13 months.

Step 3: Execution of the collections

Once you have the agreement of your customer, you can execute collections. The mandate date must be included in the collection instruction. A collection instruction can be delivered as follows:

• For small transaction volumes that you wish to input yourself each month, you can do this via the internet application of your bank or via a tool that can deliver files to the banks (e.g. via Isabel or Twikey).
• For both small and large transaction volumes you can create a transaction file (XML SEPA Direct Debit file) which contains all the transaction instructions

- in your accounting package (recommended)

- via Twikey (for smaller transaction volumes)

In both cases, you still need to import or upload the file in the web application of your bank or via Isabel.

You also need to bear in mind that the first collection of a mandate must be transmitted to the bank as a ‘First’. The subsequent collections must be identified as a “Recurrent”. For packages in which you do the input yourself, you will have to specify this. Also the moment of transmission ( sufficiently in advance) must comply with a number of rules. The first & recurrent mandatory order changes on the 20th of november 2016.

Step 4: Collection follow-up

The bank will provide you feedback on the collections. In most cases the amount collected will appear on your account after a few days.

Take into account that in some cases the money may be withdrawn from your account again. This may occur for example when your customer did not have enough money on his account.

The bank can provide feedback in different ways:

• Normal account information: please pay attention to the fact that the quality of the reporting may considerably vary from bank to bank.
• CODA or XML reporting: this is typically processed in an accounting package.A solid accounting package will automatically create a new SDD XML file in case of refusals or bad executions.
• Some banks provide additional detailed reporting (e.In XLS). Ask your bank for more information on this.

As the infrastructure of the banks does not always allow a good feedback, some guesswork may sometimes be required to find the cause of an error. In most cases, however, the error will be due to an “insufficient balance".

Added value of twikey

Twikey can assist you in the steps 2, 3 and 4 if you wish.

Twikey ensures that you can handle step 2 fully electronically and injects the information into the affiliated software packages or banks. We also ensure that customers can modify the mandate (account number, address, bank ...) or cancel it if necessary.

B2B mandates are handled electronically with eID cards or a bank card. For Core or consumer mandates, the customer can use a bank card, SMS, a signature or an eID card.

The electronic processing can be done on the basis of an invitation that you launch (e.g. via a tablet or from your website). Through Twikey you can also create recurring plans, forward collection instructions directly to a number of member banks and follow up the reporting.