The SEPA direct debit: the mandate that collects most recurring euro bills

Three parties are involved: the payer whose account is debited, the creditor who collects, and the banks on each side. The creditor sends a collection instruction to its own bank, that bank passes it through the clearing to the payer's bank, and the payer's bank debits the account on the due date. The European Payments Council writes the rulebooks for both schemes, which is what makes a German collector able to debit a Spanish account.

The direction of initiation is the whole legal difference from a credit transfer. In a transfer the payer acts, so there is nothing to reverse once the money is gone. In a direct debit the creditor acts on the strength of a document the creditor holds, which is why the scheme gives the payer a refund window and the creditor a duty to prove the mandate exists.

A mandate is the payer's authorization, and it carries a fixed set of data: the payer's name and IBAN, the creditor's name and creditor identifier, a unique mandate reference, whether the mandate covers recurring or one-off collections, the place and date of signing, and the payer's signature. The unique mandate reference is what ties a later collection to this specific authorization.

A mandate for recurring collections stays valid as long as it is used. It expires if no collection is presented against it for 36 months, and a creditor that lets a customer go quiet that long has to get a new one. The creditor stores the mandate and has to produce it when a payer disputes a collection, which in practice means an electronic mandate process has to keep an auditable record and not just a checkbox in a form.

Under the Core scheme the payer can demand a refund of an authorized collection within eight weeks of the debit date, with no reason given, and the bank returns the money. For a collection that was never authorized, because no mandate exists or the mandate was invalid, the window runs to 13 months. A subscription business therefore carries eight weeks of revenue as a contingent liability at all times.

The B2B scheme removes the eight-week right entirely. A business payer who authorized the collection cannot claim it back, which is why the scheme is restricted to businesses and why the payer's bank has to confirm the mandate before the first collection is honored. That confirmation step is the operational cost of B2B: the payer must actively register the mandate with its own bank, and a collection against an unregistered mandate is refused.

A collection is not sent on the day it is debited. The Bundesbank states the Core deadlines: a first collection against a mandate goes in five business days before the due date, and every later collection against the same mandate two business days before. A B2B collection goes in one business day before the due date, because the payer's bank has already verified the mandate.

These lead times set the shape of a billing run. A business that wants money on the first of the month starts the file in the second half of the previous month, and a change of amount that arrives after the pre-notification went out has to wait for the next cycle. Payment service providers often quote tighter internal cut-offs than the scheme minimum, which is a contractual matter and not a scheme one.

Every creditor needs a creditor identifier, which identifies the collector independently of its bank. The identifier survives a change of bank, so a mandate stays valid when the creditor moves its accounts, and it is the field a payer's bank uses to apply any block or whitelist the payer has set.

In Germany the Bundesbank issues the identifier, called the Gläubiger-Identifikationsnummer, on application through its own portal, and the application is free. A company collecting through a payment service provider often uses the provider's identifier instead, which is faster to start and harder to leave: the mandates belong to the identifier. Payments regulation in Germany covers which license that provider needs.

Before a collection, the creditor has to tell the payer the amount and the due date. The scheme calls this the pre-notification, and the default period is 14 calendar days, though creditor and payer can agree a shorter one in their contract, which most standard terms do.

An invoice, a contract with a fixed schedule or an email all satisfy the duty, as long as the payer learns the amount and the date in time. The point is practical: a payer who knows what is coming keeps the account funded, and a return for insufficient funds costs the creditor a fee and a dunning cycle. Skipping the notification does not make a collection invalid, but it makes a dispute much easier for the payer to win.

The scheme has a vocabulary for everything that can go wrong, and a collections team needs it. A reject happens before settlement, when the payer's bank refuses the collection on a technical ground or a block. A return happens after settlement, usually for insufficient funds, and the money goes back. A refund is the payer exercising the eight-week right under Core. A reversal is the creditor itself sending the money back after noticing an error, and a revocation or a request for cancellation is the creditor pulling a collection before it is processed.

The difference matters commercially because the fees and the reason codes differ. A return for insufficient funds is a dunning case: the customer still owes the money. A refund under the eight-week right is a dispute case and an invitation to look at why the customer objected. A high return rate also affects what a payment service provider charges and whether it keeps a reserve against the book.

Two things compete with it. Instant transfers made a push payment as fast as a pull payment, which removed the direct debit's old advantage of certainty at a known date, and SEPA Request-to-Pay puts a structured ask in front of that push so a payee can collect without holding a mandate at all. For amounts that vary, variable recurring payments do over an API what a mandate does on paper.

None of that has displaced the direct debit in Germany, and the reason is boring: it works, the cost is low, and the eight-week refund right is a price businesses have already priced in. What is changing is the new product decision. A payments team building a subscription flow today compares the mandate against an authorization per payment, which is the subject of account-to-account payments and card payments in Germany.

The payer signs a mandate authorizing the creditor to collect from their account. The creditor notifies the payer of the amount and date, then sends a collection instruction to its bank, which routes it to the payer's bank, which debits the account on the due date. Under the Core scheme the payer can demand the money back within eight weeks.

Core is open to consumers and businesses and gives the payer an unconditional refund right for eight weeks after the debit. B2B is restricted to business payers, gives no refund right for an authorized collection, and requires the payer to register the mandate with its own bank before the first collection is honored.

A mandate for recurring collections has no end date and stays valid while it is in use. It lapses if the creditor presents no collection against it for 36 months. A one-off mandate authorizes a single collection and is spent after it. A payer can revoke a mandate at any time by telling the creditor.

No. Regulation (EU) 260/2012 bars a creditor from requiring that the payer hold the account in a particular SEPA country, the rule usually called the ban on IBAN discrimination. A German gym that accepts only German IBANs is in breach, however its billing software is configured. The practical consequence for a collector is that the mandate process and the return handling have to work for every SEPA country, not just the home one.