SEPA Direct Debit: How to reap the benefits while avoiding the pitfalls

If your business is based on recurring revenue, and operates in one or more European markets, SEPA Direct Debit is one of the most powerful payment methods available. This pan-European bank-to-bank system lets you collect payments from customers in the Single Euro Payments Area straight from their accounts – reliably, and with less friction than cards or manual transfers. For your company, this means a more predictable cash flow, fewer failed payments, and improved retention rates. For your customers? A smoother experience where their bills “take care of themselves.”

When do the costs of SEPA DD management outweigh the benefits?  

The gains are clear. So what’s the flipside? Let’s dive into one of the main challenges of using SEPA Direct Debit: the heavy administrative workload on your internal teams. Because despite an increase in digitalization and automation, many financial departments still rely on manual input in their daily operations; for example when entering customer data, or transferring information between different systems. In the case of SEPA Direct Debit, admin-heavy tasks typically include:
 

• Collecting signatures on paper mandates

• Handling failed payments and recalls

• Preventing fraudulent sign-ups 

Does this look familiar? These inefficient processes aren’t just taking time away from more valuable work. Each unnecessary manual step also brings the risk of human error. This, in turn, can lead to an increase in failed or delayed payments, damaging your company’s cash flow as well as customer satisfaction. 

As Mikaela Allisat, Product Manager at Billogram, puts it:

“Done right, SEPA DD can benefit both your customers and your business. But without a smooth and secure sign-up process, as well as automated workflows for deviations, the costs will outweigh the benefits.”

3 keys to making SEPA Direct Debit profitable for your business 

To unlock the full potential of SEPA Direct Debit, you need to minimize time-consuming manual admin, while maintaining a high level of control to prevent fraud. And, of course, never compromise on customer experience. Here are three keys to success, which can all be achieved by partnering up with a modern payment platform provider. 

1. Leverage automation 

Free up resources and reduce human error by replacing manual steps with automated workflows. A smart payment platform lets you automate processes such as:

• payment scheduling

• updating collected amounts to match invoice adjustments

• triggering events for different scenarios, for example when a payment fails due to lacking funds in the customer’s account.

“The German greentech start-up Rabot Energy is a good example of what can be achieved. Through increased automation, real-time updates, and transparent self-service options for customers, they managed to reduce their chargeback rates by about 20%,” says Mikaela Allisat.

2. Enable Open Banking sign-up

As an alternative to complicated forms and manual mandate processes, you can enable signup through Open Banking. This allows your payment partner to collect the IBAN directly from the customer’s bank, using secure, consent-based APIs that give access to verified account data in real time.

Mikaela describes the dual wins:

“You offer your customers a seamless signup journey, as they can activate SEPA Direct Debit from their own bank account, without having to manually enter their IBAN. And since the customer’s access to the account has been securely verified, your company will also get a built-in first-line defense against fraud.”

3. Use hosted mandates – kept up to date through API

By letting your payment partner host the SEPA Direct Debit mandates in an API-driven process, you’ll ensure all mandates and invoicing information stay up to date automatically, without anyone having to type a single digit. 

“This massively reduces the admin load of your finance team, which frees up time and resources for everything from product development to improving customer service response rates”, Mikaela concludes.

Next step: Prevent chargebacks and recalls 

Now that we’ve covered the admin pitfalls of SEPA Direct Debit, and how automation helps you avoid them, let’s take a closer look at another major revenue threat. Don’t miss our article on how to reduce the risk of recalls.