Direct debit: the collection, with eight weeks of going back
It is the most convenient collection instrument there is and the one with the most surprises, because the debtor can return it without giving any explanation.
The collection order the creditor presents to their bank so that the amount leaves the debtor's account, backed by a mandate the debtor has signed.
The two schemes
- Core. Works with any debtor, consumer or not. The debtor can ask for a refund without giving a reason within the eight weeks following the charge, and up to thirteen months if the debit was not authorised.
- B2B. Only between businesses and professionals. There is no refund without a reason for an authorised debit, although the thirteen months remain for unauthorised ones. In exchange, the debtor's bank has to have the mandate registered, which means one more formality.
Presentation deadlines
Since the November 2016 revision of the European Payments Council's schemes, Core allows one interbank business day's notice (D-1) for both the first debit and recurring ones; B2B, the same. Careful: that is the cut-off between banks. Your bank will ask you for more notice — two, three or five days — and that is set by your contract, not by the scheme.
An example with numbers
A gym with 320 fees of €39 presents €12,480 on the 1st. With 3% returns:
- €374.40 comes back, spread over about ten debits.
- Every return comes with a reason code. “Insufficient funds” — retry it — is not the same as “mandate cancelled by the debtor” — go and talk to the person.
Reading the code instead of blindly retrying everything is the difference between recovering the payment and racking up return fees.
The mistake that comes up most
Writing a returned debit off and never chasing it. A 3% return rate on a base of 320 members is nearly €4,500 a year if nobody follows them up, and most of them are temporary hiccups sorted out with a message.
Where this carries on in Cairos: Subscriptions and recurring invoices.
Terms that go with this one
Almost no tax concept makes sense on its own. These three are the ones that most often turn up beside it.
SEPA mandate
The authorisation signed by the debtor allowing the creditor to raise debits against their account and their bank to honour them.
Payments and bankingDirect debit batch
The set of debits or payment orders sent to the bank in one go, in a file in a standard format.
Payments and bankingSEPA
The single euro payments area, in which transfers and direct debits work under the same rules in every country that belongs to it.
This, handled without thinking about it
Cairos keeps the invoices, the record books and Hacienda's forms from the same data, so the theory on this page turns into boxes that are already filled in.
No card and no minimum term.