What is direct debit?

As soon as you saw the term "share capital" in the elements required to set up your company, you knew you needed a business bank account. You were right, because that's exactly what article L123-24 of the French Commercial Code requires.

In this article, we'll take a look at the definition of a direct debit, who is affected by it and how it can be modified. 

Definition of direct debit

Direct debit corresponds to the obligation imposed on merchants by the provisions of article L123-24 of the French Commercial Code, to open an account in the name of their company:

"Every trader is required to open an account with a bank, credit institution or post office.

In this way, you'll have a RIB that will enable you to pay your suppliers, or any other provider of goods and services, and to be paid by your customers.

One might question the validity of this obligation, but in reality it is embedded in other obligations, laid down by the provisions of article L112-6 of the French Monetary and Financial Code (CoMoFi), which stipulates that :

"Cash or electronic money may not be used to pay a debt exceeding an amount set by decree, taking into account the debtor's tax domicile, whether or not the transaction is for professional purposes, and the person to whom the payment is made.

For example, payments for services in cash may not exceed the sum of 450 euros, or 3,000 euros for the payment of an authenticated deed to a notary (articles L112-6 and R112-5 CoMoFi), or 3,000 euros for a debtor domiciled for tax purposes in France (article D112-3 CoMoFi).

In other words, the obligation toopen a bank account in the name of your company serves a dual purpose:

• the fight against money laundering,
• the fight against tax fraud.

Everything that passes through the company's accounts facilitates the work of two major administrations, and one administrative department:

• tax authorities,
• DGCCRF,
• Tracfin.

The first needs no introduction; the second, the Direction Générale de la Consommation, de la Concurrence et de la Répression des Fraudes (DGCCRF), is a company control authority; and the third is an administrative department in charge of combating clandestine financial circuits.

In 2012 and 2013, the DGCCRF and Tracfin carried out extensive checks on domiciliation companies, as well as on accountants auditing the accounts of domiciled companies.

Who is concerned by direct debit?

As we said in the introduction, direct debit naturally concerns professionals. However, by naming only merchants, the French Commercial Code implicitly excludes craftsmen and self-employed professionals. But what about micro-entrepreneurs, or even private individuals?

Direct debit for auto-entrepreneurs

At first glance, since the PACTE law, of May 24, 2019, the principle is that micro-entrepreneurs are no longer obliged to open a bank account dedicated to their business. In this case, it could moreover be a non-business bank account.

By way of exception, however, the account dedicated to their activity is compulsory if the company's annual revenues exceed the threshold of 10,000 euros for two consecutive calendar years (article L613-10 of the Social Security Code).

There is also an exception in the case of EIRLs (limited liability sole proprietorships). Article L526-13 of the French Commercial Code stipulates that "The individual entrepreneur with limited liability is required to open one or more bank accounts in a credit institution exclusively dedicated to the activity to which the assets have been assigned."

Direct debit for individuals

Direct debit is not mandatory for private individuals. However, legislation prohibits the payment of salaries in cash in excess of €1,500. Direct debit for individuals is rapidly becoming mandatory.

So this is not a legal obligation, but rather one arising from the restrictions on the movement of species.

How do I change my direct debit?

The rules governing direct debit changes for private individuals are not at all the same as those governing direct debit changes for companies.

Change of direct debit for individuals

Individuals benefit from the provisions of the law of August 06, 2015, known as the Macron law, setting up a banking mobility assistance service. It is a 2016 decree that indicates, not only, that the outgoing and incoming banking establishments must handle the procedure, but also that direct debit issuers have a period of 10 working days to take into account the change of bank once they have been informed of the change by the banks.

Once this ten-day period has elapsed, no further penalties may be charged by the original bank for failure to fund the account.

A change of direct debit can take up to 22 working days after both banks have received the required documents. For private individuals, this procedure has become extremely simple since the enactment of the Macron law, with the banks taking charge of the entire process.

A mediation service, the Autorité du Conseil Prudentiel et de Résolution (ACPR), has even been set up in the event of a dispute between an individual and their former bank.

Changing bank domiciliation for companies

There are no simplifying measures in place for companies. That's why it's so important to choose the right bank domiciliation when setting up your company. In the event of a change of direct debit, the legal representative is left to fend for himself.

If you have decided to change your direct debit, here is a list of all the documents you need to provide to your new bank:

1. A copy of the legal representative's ID,
2. Your K-bis,
3. A copy of the signed articles of association,
4. Certificate of publication in the legal gazette,
5. The address of the registered office, with supporting documents (e.g. tax returns),
6. Your APE code and SIREN number.

Here are the steps to follow vis-à-vis your former bank:

1. Ask your home bank to transfer your accounts,
2. Get your RIB from your new bank,
3. Send your RIB to all your suppliers,
4. Send your RIB to all your customers,
5. Record the names of all organizations drawing on the account,
6. Send your new RIB to these organizations,
7. Close your old account,
8. Keep receipt receipts in case of dispute.

So changing a company's direct debit is a far cry from the simplicity enjoyed by private individuals. Nevertheless, we've mentioned the RIB on several occasions, but do you know how to read it?

Can a bank force you to take out a direct debit?

No. When it comes to direct debit, it used to be - and still is - common for a bank to ask you to place all your wages and income with them in exchange for a bank loan.

Although this practice will continue, there's nothing to stop you returning to your old bank once the loan has been granted. But why? Because the French Conseil d'Etat has ruled that this practice violates European law.

Indeed, it considered that this constituted a tied sale, a practice prohibited by Directive 2014/17/EU of February 4, 2014, making the provisions of Article L313-25-1 of the Consumer Code illegal. As a result, you are no longer bound by a minimum period obliging you to leave your wages and income with the bank that granted you the loan.

Understanding your RIB

The RIB is made up of a multitude of numbers:

• Bank code (5 digits): identifies the bank,
• Branch code (5 digits): identifies the customer's branch,
• Account number,
• The RIB key: used to check the validity of the account,
• IBAN: this is the international number used to identify the bank account,
• BIC (or Swift): this is the code used to identify the bank internationally.

Consequently, for payments abroad, or to receive transfers from abroad, the IBAN will be required. The RIB, on the other hand, can only be used in France.