In our recent SEPA briefing we highlighted that, when SEPA comes into effect on 1 February 2014, a direct debit payer will have the right to instruct its bank to refund any authorised direct debit payment within 8 weeks of such payment on a no-questions-asked basis. This will create additional credit risk and potential cash flow risk for businesses which collect payments from customers by direct debit.

Following intense business lobbying there has been a significant development. In October 2013, the SEPA Business Service (SBS) was launched, enabling businesses to seek legal agreement from their business customers who pay by direct debit to waive their right to a no-questions-asked refund.

Participating banks – which include the major Irish banks – should provide a standard debtor confirmation template which includes an irrevocable confirmation that:

• The payer is not a consumer.
• The payer’s right to refund of authorised direct debit payments will be limited to existing rights and will not include any additional rights (e.g. the right to a no-questions-asked refund within 8 weeks) under SEPA or any new terms of business issued by its bank.

You should contact your business customers who pay by direct debit, confirm that their bank participates in SBS and ask them to complete and return the debtor confirmation template. You must retain this as it may be required as proof of the waiver.

Your bank should provide you with a new creditor ID to show that you are participating in the SBS and you must use this for all SBS file submissions. You must also prefix the creditor name field with “B8S” on the SEPA DD XML file in respect of each direct debit transaction under the SBS. Even if you have already migrated to SEPA, you will need to contact your bank to find out what additional action you must take to avail of the recently launched SBS.

Contributed by Shane Kelleher.

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