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SEPA B2B Direct Debit: How does it work?

Oliver July 2020 5 min

By now, most people are probably already familiar with the SEPA Direct Debit scheme. SEPA stands for “Single Euro Payments Area” and is a system that has been used by almost all EU member states to carry out cashless payment transactions within the European Union since 2014. Less well known is the SEPA B2B Direct Debit. Today we’ll explain what’s behind a SEPA payment procedure and how you can use it for your business.

When transferring money electronically within the EU as private individuals, we use the SEPA Direct Debit scheme. It used to be the case that each EU member state had its own payment and transfer system. However, private individuals and entrepreneurs found it difficult to transfer money quickly and easily via this system. The most important feature in the SEPA scheme is the so-called IBAN (International Bank Account Number), which is the uniformly structured account number for account holders in (almost) all SEPA member states. Another key code is the Business Identifier Code (BIC), which allows for the unique identification of banks. Using the BIC, private individuals can make transfers to (accounts in) other European countries much more easily than before. Please note that in addition to the 28 EU member states, the countries of Norway, Switzerland, Iceland, Liechtenstein, Monaco and San Marino also support the SEPA Direct Debit scheme.

The advantages of this system are plain to see. Private customers and businesses can open an account at any bank in Europe and make transfers easily and securely across national borders. This procedure has proved particularly effective for recurring payments. In contrast to a standing order, the payment is not initiated by the account holder, but automatically transferred from the debtor’s bank to the creditor’s bank. However, the account holder must give his or her consent (for this transaction) in the form of a SEPA Direct Debit Mandate. The advantage here is that any changes to the payment amount are automatically adjusted. In this case, there is no need to adjust the amount (manually), as would be the case with a standing order.

SEPA B2B Direct Debit and the SEPA Core Direct Debit: What’s the difference?

What’s special about the SEPA B2B Direct Debit? What are the differences between SEPA B2B Direct Debit for businesses and the SEPA Core Direct Debit for private individuals? The principle behind both systems is identical.

In contrast to the SEPA Core Direct Debit scheme, the SEPA B2B Direct Debit is intended exclusively for payment transactions between businesses. In other words, it is not designed for money transfers between private individuals or between private individuals and businesses. Consumers are therefore generally excluded from the SEPA B2B Direct Debit scheme. A consumer is defined as any individual who carries out a money transfer or legal transaction for private purposes rather than for commercial or professional/freelance purposes.

Just as with the SEPA Core Direct Debit scheme, a mandate authorizing the collection of funds is necessary in the case of the SEPA B2B Direct Debit procedure as well. In theory, therefore, accounting errors cannot occur, seeing as the payer has authorized the payee to collect the funds. If this happens, however, transfers between private individuals or between private individuals and businesses can be made relatively easily within eight weeks. And herein lies the most important difference.

In the case of SEPA B2B Direct Debit, it is important to note that the payer’s bank carefully checks the direct debit and the mandate’s data before executing the payment. In order to avoid delays at this point, it is therefore essential that the payer send a copy of the mandate to his or her own bank. Provided that the mandate has been correctly authorized and is still valid, the client or customer is no longer entitled to a reversal of payment for the SEPA B2B Direct Debit after the direct debit has gone through.

How can I set up direct debit transactions for my business?

Authorization for business-to-business payment collections must be provided in writing using dedicated forms. The SEPA Direct Debit Mandate should be written in the payer’s native language. A mandate form in English is also permitted under certain conditions. You can find templates for the SEPA Direct Debit Mandate on the internet, for example at the Danske Bank. 

If you are a founder, entrepreneur or business person interested in collecting payments using the SEPA Direct Debit scheme, you will need to acquire a “creditor identifier” number in order to render the issuing of a direct debit legally valid. Anyone with a business can request to receive one from Deutsche Bank.

If you prefer to spend more time on your core business and less on collecting your receivables through the SEPA Direct Debit scheme, you can also outsource your processing and entrust it to third parties.

Click here for a general overview of all direct debit types here.

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