Direct debit

What it means

In a direct debit the payment is started by the creditor: on the strength of a mandate signed by the payer it sends an instruction to the bank and the amount leaves the account. That is the opposite of a standing order, which the payer sets up and changes.

The SEPA scheme comes in two forms. The core one is for consumers and lets the payer ask for the money back within eight weeks without giving a reason; the business one carries no such right, and the mandate behind it has to be confirmed with the payer’s bank in advance.

A recurring card payment is not a direct debit, even if it looks similar on the statement. With a card the merchant takes the money through a payment gateway under the card scheme’s rules, no SEPA mandate or bank-side consent is involved, and a dispute goes through the card issuer rather than the direct debit scheme.

How it works in practice

Slovak banks want more than the mandate: direct debits have to be switched on for the payer’s account, usually with an amount limit and sometimes restricted to one named creditor. Without that the collection fails even with a valid mandate, and the creditor sees only an unpaid item.

A company that wants to collect needs a creditor identifier and an agreement with its bank, and it has to notify the customer of the amount in advance, two weeks before the debit unless something else is agreed. In the books the debits are matched against the charges due using the bank statement, like any other payment.

For energy and telecoms, only the payment comes by direct debit, while the invoice or statement sits on the supplier’s portal. So that the payment does not stay in the books without a document, we agree with the client that invoices are forwarded from the portal automatically. A VAT payer cannot deduct the tax without a tax document, even though the money has left the account.

What to watch out for

A premium or an instalment goes up, breaks the limit set on the account, and the debit comes back unpaid. Under an insurance contract that ends the cover for non-payment once the period in the insurer’s reminder runs out, so a loss a month later is no longer covered.

A mandate does not end on its own with the contract. If the payer does not also cancel it at the bank once the service ends, the former supplier can still take a final balance or a disputed fee, and under the business scheme it cannot be reversed without a reason. When switching suppliers, cancelling the direct debit consent for that creditor belongs with the notice of termination.