In October 2016, any UK business accepting payments in euros will be obliged to comply with SEPA regulations. This means that the clock is ticking to ensure that your business is SEPA ready, if you are selling goods or services to any customer with a euro bank account*. Keep reading to find out what you need to know for SEPA direct debit.
What are the advantages of SEPA?
A European initiative launched in 2002 by European financial institutions, SEPA aims to ease and improve the efficiency of cross-border payments. The scheme will enable UK businesses to take EURO payments from any of the 34 countries within the SEPA zone at the same charge as a domestic tariff. SEPA will simplify payments through standardising Euro payment procedures, such as timing and refund processes, and system configuration will be simplified, as local formats will become obsolete. Transparent pricing and centralised processes will lead to better banking services, and banks will assume full responsibility if there is an error with payment.
SEPA Direct Debit
SEPA Direct Debit is a pan European Direct Debit system that enables creditors to collect Euro-denominated payments from debitors accounts (provided the debitor has signed a valid mandate) in the 34 SEPA countries and associated territories.
SEPA Direct Debit Check List
To get started with SEPA Direct Debit, any company or institution needs to use a creditor ID (CI). This CI identifies a Creditor independently from its relationship with any creditor bank. The CI represents a unique identification of Creditor (each CI refers to one Creditor only).
In addition to the above mentioned CI, there are two major steps in order to ensure the compliance with SEPA :
IBAN code
Previously, national bank code and bank account number (BBAN) were generally used for direct debit collections, however, SEPA will replace this with IBAN. An international account number (IBAN) in the UK contains 22 characters and has the following structure:
- Position 1 and 2: ISO-country code “GB” (GB: identifies the country of issue of the IBAN as the United
Kingdom of Great Britain and Northern Ireland.)
- Position 3 and 4: check digits of the IBAN
- Position 5 to 8: bank identifier (alphanumerical)
- Position 9 to 14: 6-digit branch sort code (numerical)
- Position 15 to 22: 8-digit UK account number (numerical)
New payment file formats
Presently message formats vary from country to country, however, all SEPA Direct Debit formats are based the ISO 20022 XML format. As of October 2016 the ISO 20022 XML format will be compulsory for Euro-denominated Direct Debits for the UK collected by companies with a turnover of over €2 million and more than ten staff members. Companies not meeting the latter criteria will be allowed to send their payment file in a legacy format.
Businesses should also be aware that consumers and businesses are not treated the same under direct debit scheme. There are three SEPA direct debit schemes:
- SEPA Direct Debit Core: for consumers (non businesses) paying a payee by direct debit.
- SEPA Direct Debit COR1: this is a variation of SEPA Direct Debit Core with shortened presentation deadline
- SEPA Direct Debit B2B: for B2B companies wishing to pay or collect payments by direct debit.
Changes to the schedule
For SEPA Direct Debit Core merchants must submit the collection to the banks five business days before the payment due date for a first payment, and two business days before for any subsequent payments. SEPA Direct Debit B2B and SEPA COR1 requires merchants to submit the collection one working day before payment is due, for both the first payment, and subsequent payments.
Currently COR1 is an optional scheme with limited reachability. Country wise it is mainly supported in Austria, Germany and Spain. However, from November 2016 onwards all banks have to comply with the timelines specified by COR1.
Authorising A SEPA Direct Debit
In order to collect payments with SEPA Direct Debit, the customer must have signed a valid mandate. In the UK direct debit system, mandates are stored by the debtor’s bank. In the SDD scheme, mandates are stored by the creditor. Stringent rules apply to both the content of the mandate, and the process of validating it. More information on creating a valid SEPA mandate can be found here.
Quick and easy migration with SlimPay
Let SlimPay’s Direct Debit solution do the hard work for you. Our solution takes care of the whole SEPA payment process, from electronically signing and storing mandates, to preparing payment files and executing payments. SlimPay also manages Direct Debit incidents, significantly reducing the number of payment rejections you receive from banks. Get in touch today, to find out how we can help you quickly and easily migrate to SEPA Direct Debit!
PS: Want to find out more about SEPA Direct Debit, become an expert by downloading our free guide.
* Pound Sterling (GBP) direct debit schemes are not affected.
