What is the best way to accept SEPA Direct Debit and reach many more European Buyers

 The article has been modified since it was initially published, and now contains the most up-to-date information on SEPA Direct Debit transactions as in April 2023.

If you're selling software globally and you're familiar with how complicated dealing with cross-border payments. From ensuring that you show the correct currencies for every country to accommodating your customers' preferred payment methods, the world of commerce is not without plenty of issues.

Many buyers within the European Union and surrounding countries prefer paying with SEPA Direct Debit. This not only assists in simplify multi-currency payments however it reduces the likelihood of failed payment transactions.

In this article, we'll break down the basics about SEPA Direct Debit and discuss the reason why it's crucial to accept it at check-out if you're conducting business within Europe.

Table of Contents

1.   What is SEPA Direct Debit?
2.   What is SEPA Direct Debit work?
3.   SEPA Advantages & Disadvantages
4.   "' SEPA Experience

Already a seller and want to set up SEPA Direct Debit for your company? Submit a support ticket from inside the platform or from our support page.

What is SEPA Direct Debit?

SEPA Direct Debit is a wire transfer service that permits retailers to take money from accounts located in countries and associated territories in the Single European Payments Area (SEPA).

SEPA is similar to the ACH Debit (US) and EFT (Canada) with the exception of some notable distinctions:

What is the reason it's so important to Acquire SEPA?

Today, more than 529 million citizens use SEPA to make over the 146 billion annual electronic transactions in the 36 member countries. It accounts for more than 30% of the online shopping across Europe, making SEPA an essential payment method for businesses selling into the European market.

   European-Economic Area (EEA) SEPA Countries  

• Austria
• Belgium
• Bulgaria
• Croatia
• Cyprus
• Czech Republic
• Denmark
• Estonia
• Finland
• France
• Germany
• Hungary
• Iceland
• Ireland
• Italy
• Latvia
• Liechtenstein
• Lithuania
• Luxembourg
• Malta
• Netherlands
• Norway
• Portugal
• Romania
• Slovakia
• Slovenia
• Spain
• Sweden

   non-EEA SEPA Countries as well as Territories  

• Andorra
• Monaco
• San Marino
• Switzerland
• United Kingdom
• Vatican City State
• Saint-Pierre-et-Miquelon
• Guernsey
• Jersey
• Isle of Man

Additionally, any European who has accounts with banks can make payments through SEPA. If you enable this single payment method at the point of purchase it will allow you to reach more than 500 million buyers in 36 nations.

How does SEPA Direct Debit Work?

SEPA transfers operate like domestic transfers however, there are some minor changes occurring behind the scenes. Let's look at how they operate in the view of the merchant

1. Mandate
2. Pre-notification
3. Demand for payment
4. Post-submission

1. Mandate

To be able to accept payment through SEPA Direct Debit your customer must sign the mandate authorizing you to take payments. A mandate is the billing contract signed by the buyer to allow a seller to collect the future payment through their bank account in Euro currency.

Mandates should contain certain obligatory information.

 Essential Items to an Mandat:

• Payment amount
• SEPA Mandate ID
• SEPA Mandate Date
• The name of the company that is used for merchants
• Merchant's creditor identification
• Address of the Merchant's complete address
• Information about Creditors
• Payment method
• International Bank Account Number (IBAN)
• Bank Identifier Code (BIC)
• Date of Signed
• Signature

Here's an example of the SEPA Mandate:

Step 2: Pre-Notification

According to SEPA rules, you must send your customers a pre-notification to inform them when they should expect one payment or subscription that will leave their bank account. This notification can be delivered by email, text message and/or phone calls, as well as invoices, or even in a written mailer.

Compliant pre-notifications must include to meet the following requirements:

1. A proper notice period (typically fourteen calendar days)
2. The amount, the due date Mandat reference, the creditor's ID
3. Contact details for merchants

Step 3: Payment Request

After the pre-notification is delivered after which you are able to initiate the payments by sending the mandate-related data to the bank that handles transactions for your merchant. It does this automatically for its sellers. The bank will then send the request to the clearing and settlement mechanism that will forward it to the bank of the buyer to settle.

Step 4: Post-Submission

When you make a payment, it will need a couple of days to determine if the SEPA payment has succeeded or failed. We recommend that you wait at least 48 hours to fulfill the order.

SEPA Advantages and Negatives

Benefits

SEPA Direct Debit has 3 significant advantages for businesses that take on recurring payment:

• Control: Merchants can ensure that customers pay their bills in time each month.
• Rates of retention: Eliminates failed payments due to card expiry or cancellation. Additionally, it improves customer loyalty with a convenient, set-and forget payment method.
• Lower admin time: Reduces the admin amount of time needed to collect payment.

SEPA Direct Debit is also excellent for invoicing B2B

• Improved cash flow: Payouts are made punctually and promptly in an a timely way.
• Collecting variable amounts: Using a single upfront contract, sellers can be able to claim an amount that is new instead of giving banks fresh set of instructions every when a modification is required.
• The admin process is streamlined: Payments can be automatized on a regular basis.

Other functions SEPA is useful for include:

• Markets with lower use of cards: In Germany and the Netherlands, credit card penetration is lower than 50%. SEPA Direct Debit (SEPA) is a preferred method for payment in these nations.

Negatives

SEPA isn't the best alternative for:

• transactions that require immediate clearing: SEPA Direct debit payments are not instant, even with the B2B faster scheme.
• Transactions which are most likely to be charged back: It is the SEPA Core Direct Debit no-questions-asked reimbursement policy allows chargesbacks (equivalent to refunds under the ACH scheme) effortless in the initial eight weeks following the transaction.

"'s SEPA Experience

Our system automatically displays your mandate when you check out and manages all the necessary steps for processing your buyer's order, so you don't need to change anything other than enabling SEPA for payment method in your account settings.

 This is what it looks in the eyes of your potential buyer:

1. The purchaser selects SEPA Direct Debit and enters their bank's name, the IBAN, or bank code to sign in to the bank account.
2. The customer agrees with the SEPA Direct Debit Mandate Terms and validates their bank account details to submit the order.
3. Once the purchase is made after submitting the order, the customer is directed to a page for confirmation of order which confirms that the purchase has been completed.
4. It usually takes about two days to be processed.