How to start with SEPA Direct Debit (SDD)?
To start using SEPA Direct Debit (SDD) in the most cost efficient way, you will need to follow these general steps:
Select a bank: The first step is to select a bank and bank account with a bank that supports SEPA Direct Debit. You will need to provide information to the bank on expected volumes, national/international volumes and type of direct debits.
Obtain a Creditor ID: Once you sign a "creditor agreement" with your bank, you will receive a Creditor ID to create SEPA Direct Debit. In case the bank doesn't want to support you, find another bank or Payment Service Provider. They will provide then a creditor ID. When it is a Payment Service Provider, they will give their own creditor ID (as all direct debits are processed on their account).
Create a mandate template: Create a SEPA Direct Debit mandate Template by filling in all information required to have a valid mandate. Don't take other texts if you don't like those texts or even if your marketing department doesn't like it ;-). (see further)
Obtain authorization from your customer. This involves providing your customer with a mandate form, which they must complete and sign to authorize the direct debit.
Manage your mandates: Keep accurate records of all SEPA Direct Debit mandates and monitor your bank account to ensure that payments are being collected correctly. You can use mandate management software to automate and streamline this process. (e.g. this part can be done by Twikey or by some accounting packages)
It's important to note that using SEPA Direct Debits is also subject to the necessary checks at the bank. The bank will check if the creditor is trustworthy. Additionally, using SEPA Direct Debit will involve certain fees or charges, so be sure to understand the costs associated with this payment method.
The Creditor Identifier (Creditor ID) is a unique identification number that is required for any business or organization that wishes to use SEPA Direct Debit (SDD) to collect payments from customers. It identifies the business or organization that is collecting the payments, and ensures that payments are properly authorized and credited to the correct account.
The Creditor ID is registered at the National Central Bank of the country in which the business or organization is registered. It consists of a combination of letters and numbers, and must be included in all SDD transactions initiated by the business or organization.
To obtain a Creditor ID, a business or organization must provide documentation to their bank that verifies their identity and legal status. Once the necessary documentation has been submitted and verified, the bank will request a Creditor ID on behalf of the business or organization from the National Central Bank.
It's important to note that the Creditor ID is tied to the business or organization that is collecting the payments, not to a specific bank account. This means that if a business or organization changes banks, they can still use the same Creditor ID for their SDD transactions. However, any changes to the business or organization's legal entity like a new enterprise number will require in most cases a new Creditor ID to be issued.
A creditor identification number is a unique number assigned to a company by its bank after it signs a direct debit agreement. The Creditor ID's format is depending on the country. Every country has a different structure.
This number is used to identify the creditor when offering direct debits. An example creditor identification number is BE12ZZZ0123456789.
A creditor ID number contains the following elements:
An ISO country code: BE, NL, DE, FR, IT, SP....
The next 2 digits are a check digit for checking the number. This is a mathematical check (modulo 97) that was applied years ago in Belgium to the old account numbers (before intro of the IBAN) and that is also used in structured communications. This is calculated on positions 1 &2 and 8 to 35.
The ZZZ is a "Business code" (positions 5 to 7). By default this is ZZZ. But a company can give its own alphanumeric interpretation to this without permission from the bank. For example, it can be decided to give different departments, subsidiaries, products, regions or even target group a different code. In this way, the results of direct debits can also be looked at for this segmentation.
Finally, the next 8 to 35 positions contain a country-specific identification. This differs per country. In many cases, the company number or Chamber of Commerce number is part of this. Details per country can be found here. In Belgium, exceptionally, another number is also used that the bank can assign itself. Then the format has the following structure: BE31ZZZ300D000000043. At some banks, you can also ask not to take the company number and receive such a number.
Here is a checklist of items to consider when using SEPA Direct Debit:
Legal requirements: Verify that you are legally authorized to collect payments from customers via direct debit. Make sure you understand any local laws and regulations and obtain any necessary licenses or permits.
Bank account: Have a a bank and a bank account that supports SEPA Direct Debit. Provide the necessary documentation to verify your identity and the identity of your business.
Creditor ID: Obtain a Creditor ID to create SEPA Direct Debit mandates. Your bank can provide you with a Creditor ID or you can request one from your payment service provider.
System compatibility: Verify that your billing and invoicing systems are compatible with SEPA Direct Debit. You should be able to create and manage mandates and process direct debit transactions. Or use a third party package that can generate SEPA Direct Debits.
Mandate type: Choose the correct type of mandates; CORE or B2B or both depending on the risk you want to take and the business you're in.
Mandate creation: Create a SEPA Direct Debit mandate by obtaining authorization from your customer to collect payments via direct debit. Provide your customer with a mandate form to complete and sign to authorize the direct debit.
Mandate management: Keep accurate records of all SEPA Direct Debit mandates and monitor your bank account to ensure that payments are being collected correctly. Use mandate management software to automate and streamline this process.
Compliance: Comply with regulations and requirements, such as obtaining customer authorization and keeping accurate records. Ensure that you have the necessary processes in place to ensure compliance.
Fees: Understand the costs associated with using SEPA Direct Debit, as some fees or charges may apply.
Find a way to deliver transactions to the bank. Eg. Via a bank online tool, SFTP, Ebics, Swift Alliance Lite, Isabel, Twikey or other tools.
Follow-up the transactions: this is mostly forgotten but it is very important that transactions are not just launched but also followed-up with advanced processes.
Act on feedback: when received feedback on transactions, it is also imperative that this has an influence on the mandates. If an account is blocked, it makes no sense to keep on using the mandate.
By following this checklist, you can ensure that you are fully prepared to use SEPA Direct Debit and can collect payments from your customers efficiently and effectively.