Cancellation of a SEPA Direct Debit: how it works and the impact for merchants.

Many payments are made by direct debit, where a merchant is authorised to debit a set amount on a regular or one-off basis through a mandate signed by the consumer at the start of the transaction.

In this article, we look at how direct debit cancellation works, including the conditions, deadlines and available procedures for interrupting or pausing SEPA Direct Debits, as well as the impact for the merchant.

Direct debit cancellation: How does it work?

Before a SEPA Direct Debit can be set up, a SEPA mandate must first be signed by the payer and sent to their bank and to the creditor.

This SEPA mandate acts as a direct debit authorisation and includes the essential data needed to identify future direct debits (Unique Mandate Reference, SEPA Creditor Identifier, etc.) throughout its lifetime.

Once the SEPA mandate has been set up, it will be considered null and void if no SEPA Direct Debit is made from the payer’s bank account within 36 months of the date the mandate was signed.

Once the direct debit process has been set up, you should be aware that there are three ways of cancelling or pausing a direct debit:

SEPA Direct Debit suspension:
- This temporarily suspends one or more direct debits (before they fall due) for a maximum of three consecutive months.
- Note that the direct debits resume once this period has elapsed.

SEPA Direct Debit reversal:
- This is used to obtain a refund following a direct debit that has already been paid, i.e. once the payer’s bank account has been debited and the creditor’s bank account has been credited.
- Reversal must be requested within 8 weeks of the debit date.
- The creditor’s bank will return the funds to the payer within 10 days.
SEPA Direct Debit cancellation:
- This is a permanent cancellation of payment authorisation.
- Once the cancellation is in place, the creditor will no longer be able to withdraw funds from the payer’s bank account, and subsequent SEPA Direct Debits will be rejected directly by the payer’s bank.
- If the creditor wishes to make further recurring or one-off direct debits, a new SEPA Direct Debit mandate must be drawn up, completed and validated by the payer.

Having said that, let’s take a closer look at the steps required to cancel a direct debit and the associated conditions.

How does it affect you as a merchant?

The first thing to bear in mind is that cancellation is at your customer’s initiative.

A SEPA Direct Debit cancellation request can be made for a variety of reasons, such as:

o Cancelling a subscription to stop using the merchant’s services,

o Disagreeing with the amount debited,

o Changing banks by the customer.

In practice, if you do not have a dedicated solution for managing the payment process, your customer will first have to send you a registered letter with acknowledgement of receipt.

The cancellation of a SEPA Direct Debit can be taken into account from the date you are notified of the customer’s decision to cancel.

For this letter to be valid, it must include the information relating to the mandate that was previously sent to the payer (unique mandate reference, SEPA creditor identifier, name of the organisation, creditor’s contact details, etc.).

At the same time, payers must inform their bank, to terminate the current mandate and hence any future direct debits.

Note that the customer no longer has to give grounds for cancelling the mandate, which was the case before direct debits were introduced in the SEPA area.

As you can see, as a merchant you will have to manage all the steps involved in cancelling the mandate and contacting your bank.

In summary, this is quite a laborious process that can involve a lot of manual work by your staff and, at the same time, be detrimental to your finances.

So what options are available to you?

Managing cancellations: how can you protect yourself?

→ Option 1: delegate a company employee to manage customer disputes and mandate cancellation requests.

Depending on the size of your business and the flow of subscriptions and recurring payments managed, this can involve a significant amount of work by the dedicated staff member, with both the bank and your customers.

A feasible option, but clearly not to be preferred in a world where digitisation is paramount.

→ Option 2: automate the process with a payment service provider

In reality, this means delegating the entire processing chain for your recurring direct debits, including the management of marginal cases, rejections and mandate cancellations.

There are several solutions available on the market, and you need to take the following factors into account:

The automation process offered by the service provider: if you want to delegate all your recurring payments, you will need to select a company that can handle both routine cases when all goes well and problematic cases,
The service provider’s financial management: how does the service provider manage the funds received, to ensure the continuity of the sums resulting from recurring direct debits,
The service provider’s ability to honour its financial commitments in the event of disputes or refund requests: this is the crucial point when it comes to cancelling a direct debit mandate. A service provider with a solid track record in terms of ring-fencing is a sign of confidence for you as a merchant.

The SEPA Direct Debit is very practical way to automate recurring payments such as regular subscriptions.

This is an undeniable advantage for you when the payment process goes smoothly, but it can be costly in time and money when customers make specific requests such as cancelling a direct debit mandate.If you want to continue to maintain a high level of customer satisfaction and automate as much of this process as possible, choosing the support of a dedicated payment service provider like SlimPay is essential.