How eBilling can help SEPA Direct Debit acceptance

Direct Debit functions well as a payment instrument for many creditors in the euro zone. The main reason for the popularity of Direct Debit is that the authorisation to initiate the payment resides with creditors — of course, only after debtors have properly mandated them. Furthermore, its easy to link a Direct Debit to the original underlying invoice, which ensures efficient processing. Finally, bank charges for Direct Debit are reasonable.

The advent of SDD, however, leads to more hassle, more cost and more uncertainty for creditors and debtors.

Creditors face two specific requirements from SDD that are a burden: the extension of the refund period and the Direct Debit pre-notification. Both requirements result from concerns consumer organisations have about the potential abuse of the system when collectors across Europe can reach consumers’ current accounts.

The extension of the refund period from 30 days to eight weeks under the Payment Services Directive has affected the appetite of various industries for SDD. Imagine a travel agent offering this payment instrument for last-minute trips. A customer could purchase a weekend trip to New York, fly first class and stay in a five-star hotel, before initiating a refund via his bank after the trip. In this instance, it would be very hard for the travel agency to get its money, especially if the customer lived in another country.

Creditors notify debtors of amounts and due dates before they try to collect from debtors banks. This pre-notification may be sent together with, or as part of, other commercial documents (e.g. an invoice). In a number of cases, this is an additional administrative requirement imposed on creditors by SDD.

Debtors have to cope with the idea that anybody in Europe can attempt to debit their account, which can be a frightening thought. Some consumers may, therefore, block their accounts for Direct Debit totally, despite the preventive measures taken within SDD.

The consequences of this situation are that creditors suffer increased costs, deal with more exceptions and might not recognize revenues until the extended refund period on SDD has expired.

EBilling via email mitigates these consequences for creditors and debtors. In the case of SDD bounces or exceptions (90% of which are due to lack of funds at the moment of processing), creditors can immediately generate an eBill reminder that initiates an online payment. Experience has shown that 50%-75% of debtors will pay the bill in a short time, especially for those SDDs that bounced because of a lack of funds. Compared with a traditional Dunning process, this saves a lot of time and cost.

The advantage for debtors is that they can determine who they wish to receive eBills from and the moment of payment initiation. If they have insufficient funds in the account they normally use for Direct Debit, debtors can easily pick another account to pay from.

In a practical scenario, eBilling can be used with SDD to cater for the regulatory requirement of pre-notifications and the cash collection. Debtors receive an SDD pre-notification in an e-mail that gives the status of the payment two weeks before processing. On the SDDs processing date, the status changes dynamically either to “OK”, indicating that the SDD has been processed successfully, or “NOT OK”, which indicates that the SDD has bounced. Banks send bounced SDDs back in batch to creditors in electronic format. The creditors’ system then automatically generates a reminder eBill out of the batch file of bounced SDDs.

This leads us to the conclusion that combining eBilling with SDD will increase the acceptance of SDD. EBilling can be used to present bills with the Direct Debit pre-notification and as a reminder in case of bounced SDDs. The result is a win-win situation, in which debtors keep maximum control of their payments and gain an easy tool to make online payments after bounced SDDs that doesnt require them to enter any data. Creditors maximize automated processing and combine the regulatory requirement of SDD pre-notification with their own collections process (Dunning). As a result, creditors can meet their objective to collect outstanding invoices as fast as possible (to reduce days sales outstanding) with as little cost as possible.

Peter Kwakernaak
CEO AcceptEmail