How a direct debit works
The payer signs a mandate, on paper or electronically, that authorises the payee to collect. The payee sends each collection through its payment service provider to the payer's, and the payer's account is debited on the due date. A collection can fail or come back later, for lack of funds or because the payer objects, so the money is not final when it arrives.
In the SEPA schemes the payee, called the creditor, stores the mandate, and each mandate is identified by a unique mandate reference and a creditor identifier. Collections are in euro only.
Refund rights in SEPA and the UK
- SEPA Direct Debit Core: a refund on request, with no reason needed, for eight weeks after the debit
- SEPA Direct Debit Core: up to 13 months where the collection was unauthorised
- SEPA Direct Debit B2B: business payers only, with no refund of an authorised collection
- UK Direct Debit Guarantee: a full and immediate refund from the payer's bank if an error is made
- UK Direct Debit Guarantee: notice of a change of amount, date or frequency, normally 10 working days ahead
Why direct debit matters to a payments product
Direct debit suits subscriptions, bills and loan repayments, because the payer does nothing each time. The cost is the refund window, which leaves the payee, and the provider behind it, exposed for weeks. The EPC's schemes put the risk of a fraudulent or erroneous collection on the creditor's provider, never on the payer, so a provider offering collections vets each creditor.
Direct debit or standing order?
- Standing order
- Set up by the payer, for a fixed amount on fixed dates, and pushed from the payer's account. A direct debit is pulled by the payee, and the amount can vary.
- Card on file
- Also pulled by the merchant, but over the card schemes, with chargebacks in place of direct debit refunds.
Where a direct debit shows up in a platform
Modules that do the work
- Accounts & IBANsCustomer accounts with their own IBANs, on the partner bank and the rails you choose.
- PayoutsMoney out to bank accounts, cards and wallets, on the rail that fits each payment.
- LedgerThe double-entry book of record behind every balance, fee and transfer.
Platforms that need it
Guides that go deeper
Where it is written
The laws and standards this page's facts come from.
- European Payments Council, SEPA Direct Debit (SDD)
- The Direct Debit Guarantee (Direct Debit, Pay.UK)
- Regulation (EU) No 260/2012, the SEPA Regulation, consolidated to 8 April 2024 (EUR-Lex)
General information, not legal advice: what applies to you depends on your services and your market.