What is recurring payment: how it can transform your SME
2026-02-24
Imagine for a moment that, instead of spending your day chasing invoices, your business income arrived on time, like clockwork, every month. That is exactly what recurring payment is about: a system that automates collections from your clients at fixed intervals.
Think about how you pay your streaming subscription or your gym membership. It is that same principle, but applied to your company to give it stability and predictability.
Understanding recurring payment beyond a subscription
Although the subscription example is perfect for understanding the idea, recurring payment is much more than that. It is a strategic tool that helps you stabilise your SME’s cash flow and, above all, build a much stronger, lasting relationship with your clients.
This model turns a one-off sale into a constant, predictable stream of income. For a small or medium-sized company, this means a radical change: from the uncertainty of sporadic collections to the peace of mind of knowing how much money you have each month.
And no, it is not something reserved for large corporations. It is a fully accessible tactic that lets businesses like yours plan, invest and grow with a level of security that was once unthinkable.
Why has it become so popular?
The popularity of this model is no coincidence. The rise of subscription-based businesses has made recurring payments grow spectacularly in Spain. In fact, according to the National Observatory of Technology and Society (ONTSI), more than half of Spaniards already have at least one online subscription, which shows that as consumers we are already fully used to this system.
This change in consumption habits has normalised automatic collections in many sectors: software, online training, professional services, maintenance… Opening a golden opportunity for SMEs. If you want to go deeper, you can read more about the payments landscape in Spain and what it means for businesses.
A recurring payment is not just a way to collect; it is a strategy to retain. By automating the process, you remove friction and make it easy for your client to stay with you month after month, which greatly strengthens their loyalty.
Recurring payment vs one-off payment: Impact on your SME
To really understand the change in mindset it brings, nothing beats a direct comparison. Here is a table that summarises the key differences and how they affect your day-to-day.
| Feature | Recurring payment | One-off payment |
|---|---|---|
| Cash flow | Predictable and stable. Makes financial planning easier. | Irregular and unpredictable. Makes forecasting difficult. |
| Administrative load | Minimal. You set it up once and it runs on its own. | High. Requires manual invoicing and follow-up for each sale. |
| Client relationship | Ongoing and long-term. Fosters loyalty. | Transactional and one-off. The relationship ends after payment. |
| Non-payment risk | Low. Automation reduces forgetfulness and delays. | High. Depends on the client taking action to pay. |
| Revenue forecasting | Simple. Based on the number of active clients. | Complex. Depends on constantly winning new sales. |
As you can see, the recurring model not only saves you time but gives you a much more solid base on which to build the future of your business.
The real impact on your business
Implementing a recurring collection system brings very concrete benefits that you will notice from day one. It is not just a matter of convenience; it becomes a fundamental pillar for managing your company.
- Stabilises your cash flow: No more surprises. You will know with reasonable accuracy how much you will receive each month, which lets you plan expenses and investments with confidence.
- Reduces administrative load: Say goodbye to the repetitive task of creating, sending and chasing invoices one by one. You can use that time to grow your business.
- Minimises non-payments: Automation is your best ally against forgetfulness or delays. Collections are processed on the agreed date without anyone having to intervene.
- Builds client loyalty: By removing any obstacle in the payment process, the commercial relationship flows smoothly, making your clients stay with you longer.
Direct debit and the SEPA mandate: the engine of recurring payment
For recurring collections to work like clockwork, you need a reliable mechanism behind them. In Europe, that engine is SEPA direct debit (Single Euro Payments Area). Think of it as the engine room of your business, the one that makes sure collections arrive on time without you having to lift a finger each time.
The central piece of this whole machinery is the SEPA mandate. This is not a simple form; it is the contract that gives you legal permission to initiate charges on your client’s account. Without a valid, well-managed mandate, any collection you try to make by direct debit will not be valid.
The SEPA mandate is your legal pass. It is an explicit agreement where the client gives you the green light to collect from them periodically, laying the foundations for a relationship of trust and transparency from the start.
For this “contract” to be valid, it must contain very specific information. A small error in any of the data can cause the direct debit to be returned, creating a real administrative headache.
What is a SEPA mandate and what data must it contain?
Imagine the mandate as the boarding pass for each payment you are going to receive. If a single piece of data is missing or wrong, the payment simply does not take off. These are the essential fields:
- Full identification of the creditor: Your name or company name, tax ID and address.
- Full identification of the debtor: Your client’s name or company name, their tax ID and address.
- Debtor’s bank details: The IBAN of the account where charges will be made.
- Unique Mandate Reference (UMR): This is like the mandate’s own ID, a unique code that identifies that specific agreement.
- Payment type: It must be clear whether it is a recurring payment or a one-off payment.
The client’s signature, whether on paper or digital, is what brings this agreement to life. If you want to go into all the details, we recommend our complete guide to the SEPA mandate and its implications.
From mandate to collection: how a SEPA payment works step by step
Once the client signs the mandate, a process with very clear steps is activated, communicated to the bank through a specific language: the SEPA XML file.
- Signing of the mandate: Your client gives you their authorisation. This is the starting gun and the unavoidable legal requirement.
- Creation of the SEPA XML file: With the mandate data and the amount you want to collect, you generate a file in XML format. This file is basically the order you give your bank to move the money.
- Sending and bank processing: You upload that file to your online banking. Your bank’s system reads the order and executes the charge on your client’s account.
- Credit to your account: Finally, the money arrives in your company’s account on the date you expected.
Inside that XML file, codes are used to indicate the nature of each collection. The two most important are FRST (First), which is used only for the first collection in a recurring series, and RCUR (Recurring), which is used for all subsequent collections. Confusing these codes is one of the most common causes of returned direct debits.
There are also two main schemes or modalities: * CORE scheme: The most common, designed for collecting from individual clients (B2C). It gives the client up to 8 weeks to return the direct debit if they disagree. * B2B scheme: Exclusive for operations between companies and self-employed (B2B). In this case, the client waives their right to return, which gives you, as the collecting company, much more security.
Understanding all these pieces is key to knowing not just what a recurring payment is, but how to manage it correctly and without surprises.
Clear advantages and hidden risks for your SME
Switching to recurring payment can be a before and after for your SME’s financial health, but it is essential to understand both the benefits and the possible bumps in the road. It is not a magic wand but a strategic tool that, if used well, will give you huge stability and growth potential.
The most powerful advantage is undoubtedly cash flow predictability. It is like going from navigating in fog to having a clear map of your income month by month. This visibility gives you great peace of mind when planning investments, expenses or even hiring someone new.
What is more, automation deals a heavy blow to two of the biggest headaches for any business: non-payments and late payments. When the collection runs automatically on the agreed date, client forgetfulness and the nightmare of chasing invoices are over. That frees up time that is worth its weight in gold.
The main benefits of recurring payment
When you put this system in place, the improvements are noticeable from minute one.
- Stable, predictable income: Say goodbye to the roller coaster of invoicing. You will have a solid base of monthly income that will let you make strategic decisions with much more confidence.
- Drastic reduction in late payments: Studies, such as one from GoCardless, estimate that SMEs spend an average of 1.5 hours a day chasing invoices. Direct debit practically eliminates this problem at the root.
- Automation and efficiency: Your team will stop wasting time on repetitive tasks like issuing and sending invoices. That time can be invested in what really matters: looking after your clients or finding new business opportunities.
The process is simpler than it seems. This diagram sums it up perfectly.
As you can see, everything rests on three pillars: your client signing the authorisation (the mandate), you generating a standard SEPA file and you sending it to the bank so it executes the collection.
Challenges to bear in mind
Now, let us be honest: it is not all plain sailing. There are risks too, and the main one is knowing how to manage returned direct debits. A client can return a charge for a thousand reasons, and you need a plan to act quickly and well, without damaging the relationship with them.
A recurring payment system is not something you can “set and forget”. It requires you to manage mandates actively, communicate transparently with your clients and have a clear protocol for unforeseen events like returns.
Another challenge is managing SEPA mandates. It is your responsibility to keep an orderly, up-to-date database of all authorisations. It is a legal requirement, but also the only way to avoid errors that can cost you money and grief.
Finally, there is the churn rate. If your clients cancel, your recurring income plummets. This forces you to focus more than ever on offering a service or product so good that your clients do not want to leave.
If you have this full picture, with the good and the bad, you will be ready to get the most out of recurring payments and keep the risks at bay.
Practical guide to implementing recurring collections in your business
Now that we have the theory clear, it is time to roll up our sleeves and put it into practice. At first glance, setting up a recurring payment system may seem like a mountain to climb, but if we break it down into logical steps, you will see that it is a path that any SME can take.
The trick is not just choosing a programme but defining a workflow that is secure, complies with regulation and, most importantly, frees you from manual tasks and gives you peace of mind.
1. Choose the tool that best fits you
The first step, and one of the most important, is finding the right technology partner. Managing ten direct debits a month is not the same as managing a thousand. Think about your current volume, yes, but also where you see yourself in one or two years.
Some companies opt for “all-in-one” solutions that manage the full client cycle. For example, when evaluating how to implement recurring collections, many companies bet on membership models to guarantee a constant flow of income. Other SMEs, however, prefer more specific tools that focus on solving one key piece of the puzzle, such as generating bank batches.
The best tool is not the one with the most buttons, but the one that solves your problem in the most direct way and lets you grow without having to change system at the first hurdle.
2. Obtain and store SEPA mandates safely
Once you have the tool, the next step is to obtain your clients’ authorisation. The SEPA mandate is the legal document that gives you the green light to charge direct debits to their account. It is crucial to ensure that each mandate is fully completed and signed, whether on paper or in digital format.
And as important as obtaining it is storing it. Archive these mandates securely and in an organised way. If there is ever a dispute or a simple check, you will need that document to prove that the client gave you their explicit consent.
3. Validate bank details to avoid returns
A single wrong digit in an IBAN is enough for the bank to return the direct debit. And that means a fee for you and a delay in the collection. That is why, before issuing anything, it is essential to check that your clients’ bank details are correct.
Specialised tools already include IBAN validators that verify the structure and check digit of the account. This small prior check drastically reduces the risk of returns due to silly mistakes and saves you a lot of headaches and money.
4. Generate bank batches without being a technical expert
This is where technology becomes your best ally. Although the SEPA XML format that banks require is a complex IT language full of rules, you do not need to know any of that. The process should be as simple as using a spreadsheet.
- Prepare your data: Simply gather the collection information (name, IBAN, amount and mandate reference) in an Excel or CSV file.
- Use a converter: Upload that file to a platform like GenerateSEPA. The tool “translates” your spreadsheet into the language the bank understands.
- Download the XML file: In seconds, you have a perfect SEPA XML file, error-free and ready to upload to your online banking. If you are curious, you can see in detail how our SEPA converter works and why it simplifies this step so much.
5. Schedule and automate sending collections
You are almost there. The last step is to upload that XML file to your online banking and choose the date on which you want the direct debits to be run. Most banks let you schedule sends in advance, giving you full control over your cash flow.
And if you handle a considerable volume of clients, automation through an API is the icing on the cake. This lets your management programme (CRM or ERP) communicate directly with the conversion tool to generate batches without anyone having to intervene. It is the perfect close of the efficiency loop.
Legal and technical requirements you need to know to manage your collections
Managing payments and, above all, clients’ bank data is not something to be taken lightly. You have to comply with a set of very strict rules that combine the legal with the technical.
Understanding these obligations well is essential for your collection process to be reliable, secure and free of unpleasant surprises. Let us break down the key points.
The key piece: the SEPA mandate
The SEPA mandate is the cornerstone of this whole system. Think of it as the contract that gives you permission to collect from your clients periodically. Without this document, you simply cannot initiate a direct debit collection.
This mandate must include, at minimum, the data that identify your company (the creditor), your client (the debtor), their IBAN account number and a Unique Mandate Reference (UMR) that acts as the ID of that agreement.
For it to be valid, your client has to sign it, whether on paper or electronically. And this is where GDPR comes in: you have an obligation to store these mandates securely and protect the personal data they contain, always applying the data minimisation principle.
Changes on the horizon: new obligations with the tax authority
As if that were not enough, the regulatory landscape keeps evolving. You need to be very alert because, from 2026, Royal Decree 253/2025 will change the rules of the game.
This decree will require banks to inform the tax authority of the digital collections received by businesses and self-employed people on a monthly basis, instead of annually as until now. This means that the need to have rigorous, up-to-date collection systems becomes even more critical.
The technical part: the SEPA XML file
Once you have the signed mandate, the next step is to generate the file to send to the bank. This is not just any file; it is a SEPA XML file with a precise structure defined by the European Payments Council.
Every piece of data, every tag, must be in its exact place. A small format error or an incorrect IBAN can cause the bank to reject the entire batch, leading to returns, delays in collections and unexpected fees.
For example, this is what a small part of the code looks like:
Expert tip: Validating your clients’ IBANs before generating the file is one of the best practices you can adopt. It can reduce returns due to account errors by up to 90%, saving you a lot of time, money and headaches.
How to simplify all this: integration and automation with an API
Can you imagine having to create these files by hand? It would be madness. The solution to avoid errors and optimise your time is automation through an API.
With a simple call, your management programme (CRM or ERP) can send the collection data to a specialised system and receive in return the SEPA XML file perfectly validated and ready to send to the bank. This lets you:
- Automatically map data from an Excel to the SEPA file fields.
- Validate in real time that IBANs and other data have the correct format.
- Ensure that sensitive data is deleted after conversion to comply with GDPR.
Tools like GenerateSEPA handle all this technical and regulatory work for you, acting as a protective shield for your company. If you want to learn more about how it works, we recommend reading our article on the SEPA direct debit order.
Complying with all these requirements not only avoids possible penalties but also strengthens your clients’ trust when they see that you treat their data with the utmost seriousness.
In short, if you want to manage your recurring collections with full guarantee, make sure you:
- Stay up to date with the latest SEPA schemes and regulations.
- Implement an IBAN validation system before generating batches.
- Automate file creation to eliminate the risk of human error.
With these guidelines, your SME will be more than ready. And if you need help, GenerateSEPA can be your co-pilot every step of the way, from mandate management to final file generation.
Answering the most common questions about recurring payments and SEPA direct debit
When you consider automating collections, it is totally normal for questions to flood in. It is an important step. That is why we have gathered the most frequent questions about recurring payments and SEPA direct debit, with clear, direct answers so nothing is left unclear.
What is the difference between a SEPA direct debit and a recurring card payment?
The big difference is where the money comes from and how reliable the system is. A SEPA direct debit is collected directly from the client’s bank account, always with their prior permission, of course (what we know as the mandate). This method is great for fixed amounts like subscriptions, rent or monthly services, because fees are usually lower and you do not have to worry about a card expiring.
Recurring card payment, on the other hand, stores the credit or debit card details to collect from it. The problem? You depend entirely on that card. If it expires, if the client cancels it or if it hits its credit limit, the collection fails. And that means more work for you.
If you are an SME and you want stability and predictable costs, SEPA direct debit is usually the most solid and economical option in the long run in Europe. Its failure rate is infinitely lower than card payments.
What do I do if a client returns a direct debit?
Do not panic. When a client returns a direct debit, the bank takes the money from your account and, to make matters worse, usually charges you a fee for the process. The first thing is to take a deep breath and act with a clear head.
Get in touch with your client. Be proactive and ask them what happened. The reasons can be very varied:
- They simply did not have enough funds in the account.
- They disagree with the charge (important to clarify!).
- It was a mistake or they did not remember the collection.
Once you know why, you can manage the situation. The usual thing is to agree a new collection date or, if there was an error on your part, to correct it. Using tools that validate the IBAN, like GenerateSEPA, takes a lot of returns due to silly errors off your plate, but communication with the client will always be your best ally.
Do I need to know about IT to generate SEPA XML files?
Absolutely not. Years ago, yes. The SEPA XML format is a very strict, fairly complex technical standard, but fortunately you no longer have to wrestle with it. Today there are platforms that act as an automatic “translator”.
The process could not be simpler: you prepare your collection data in a simple Excel or CSV file, you upload it to the tool and, in seconds, you have a validated SEPA XML file ready to send to your bank. No errors and no headaches.
What if I have hundreds of clients? How can I automate everything?
That is where the magic of automation comes in, which is what will let you grow for real. If you handle a large volume of clients, the smartest thing is to connect your management programme (whether an ERP, CRM or your own software) to an API like GenerateSEPA’s.
This connection makes your management system send the collection data and receive the SEPA XML file already prepared for the bank, without anyone having to press a single button. It is the definitive way to manage hundreds or thousands of recurring payments, saving time that is priceless and eliminating the risk of human error entirely.
Tired of wrestling with bank files and chasing collections? With GenerateSEPA, you can turn your spreadsheets into valid SEPA XML files in seconds. Go ahead and start your free trial at GenerateSEPA to automate your batches from today.
