Direct Debit helps businesses automatically collect recurring payments from customers’ accounts, but before they can do so, the customer has to authorize the business to debit the payment amount from their account. Direct Debit mandates are how customers can give this authorization.
To better understand Direct Debit mandates, this guide will explore what they are, how they work, and how to set up one on a customer’s account.
What is a Direct Debit mandate?
A direct debit mandate is a payment instruction that allows the customer to authorise a business to collect future and regular payments directly from their account.
Technically, a direct debit mandate is an agreement between a customer and a business to enable specific payment amounts to be deducted from the customer’s account. So, without a direct debit mandate authorized by a customer and approved by their bank, you cannot process direct debit payments.
Direct Debit mandates follow certain standards such as:
With an authorized and approved direct debit mandate, the business can debit a customer's account of amounts and at frequencies, based on the agreed terms.
The customer must be notified of any changes to the mandate set up on their account.
Every customer is protected by the Direct Debit Guarantee, so, in any case where an unauthorised payment is erroneously made or an amount is debited by mistake, the customer is entitled to a full and immediate refund.
How do Direct Debit mandates work?
First, the business will create a mandate form detailing the payment type, amount, debit frequency, and other required details. The customer will be prompted to review and authorize the initiated mandate, which could be a physical or online document which requires them to securely provide their banking details and prove account ownership to authorise the mandate on their account.
As soon as the mandate form has been completed and all payment details agreed to by the customer, the business will submit the completed mandate to the customer’s bank for approval. When approval is granted, the business can go ahead to debit the customer’s account based on the agreed payment terms.
How can you set up a Direct Debit mandate?
Depending on your Direct Debit provider, the method of setting up a payment mandate can vary.
For example, with a Direct Debit provider like Mono Direct Debit, you can set up a mandate via a simple API integration which allows you to have more control of the mandate authorization experience within your product.
You can also set up a mandate via the no-code Mandates feature on the Mono dashboard which allows you to create direct debit mandates to accept payments from customers' accounts, without writing a single line of code. This method is mostly suited for businesses that need to collect recurring payments but don’t have a developer on their team to handle the technical implementation of the Direct Debit API.
As a customer, how can you approve a Direct Debit mandate?
There are two ways that customers can authorize a direct debit mandate on their accounts. This could either be via:
Paper mandates
This is usually a paper form the customer fills out in person to authorise a direct debit mandate on their account. In other cases, the customer might download and print the mandate form on the business’ website to sign before sharing it with the business.
With this mandate type, the business will have to retrieve the signed mandate, verify that the details submitted are correct, and then submit it to the customer’s bank for approval.
Paper mandates are ideal for businesses that serve customers without access to the internet or who don’t have online banking details to authorize a mandate with. For example, a lender offering SME loans to rural farmers can use paper mandates to get authorization to debit borrowers’ accounts for loan repayments.
Paper mandates are manually processed and physically stored for reference purposes which usually takes time and effort. Mono Direct Debit helps reduce this long administrative process by enabling the business to upload the signed mandate forms via the Mono dashboard, automatically process the mandates and send them to the customers’ bank for approval, while allowing the business to store them securely in one place.
Online mandates or e-mandates
Online mandates or e-mandates are significantly easier and faster to set up compared to traditional paper mandates. This mandate type requires the customer to fill out the mandate form electronically and prove ownership of their account to permit the business to take regular payments directly from their bank account. The completed mandate form is then submitted to the bank electronically for approval.
Using a Direct Debit provider like Mono Direct Debit guarantees that the customer can conveniently and securely complete the mandate setup process in 2 minutes, no matter the bank they use.
Mono Direct Debit also enables businesses to create mandates by integrating the Mono Direct API or using the no-code mandate setup to generate a mandate link they can share with the customer via email. The customer can then approve the mandate by uploading their digital signature or completing an e-authorization by transferring NGN 50 to an NIBSS-designated account.
How can you cancel a direct debit mandate?
Both the business and the customer can cancel a created direct debit mandate by submitting a cancellation request to the bank. However, Mono Direct Debit can submit this cancellation request on businesses’ behalf. With the Mono dashboard, businesses can cancel mandates automatically in one click or do it via the Mono Direct Debit API. Mono Direct Debit also allows businesses to pause, reactivate, or make changes to a mandate, giving them flexibility over how to manage mandates created on customers’ accounts.
If you’re looking for an easier and faster way to collect automated recurring payments from your customers, Mono Direct Debit can make that happen. No matter the mandate type you choose, Mono Direct Debit allows you to securely and easily set up payment mandates across 20+ financial institutions and multiple account types with different mandate authorization methods. This ensures that payments are collected on time, cheaper, and more securely. To get started with Mono Direct Debit for your business, you can sign up here and check our API documentation for a more detailed implementation guide.
