How do SEPA Direct Debit payments work?

Updated August 30, 2023 07:54

SEPA Direct Debit payments

👉 How it works

👉 Main features of SEPA Core and B2B

👉 Main statuses of a SEPA Direct Debit/SDD Mandate

👉 Cancel a SEPA Direct Debit/SDD Mandate

👉 Refund a SEPA Direct Debit/SDD Mandate

👉 My customer says they have been debited but the transaction is not showing as completed

👉 Main reasons for returned SEPA Direct Debit (SDD) payments

How it works

A SEPA Direct Debit allows you to collect payments in euros in the 34 countries of the SEPA zone (Single Euro Payments Area), from individuals (SEPA Core Direct Debit), or from companies (SEPA Core or B2B Direct Debit).

Benefits of payment by SEPA Direct Debit include:

Management of recurring payments (subscriptions, loan repayments, etc.)
Payment initiated by the payee (vs. bank transfer for example, which is initiated by the payer), allowing better control of your receivables & easier cash flow forecasting
Simplification of the customer journey (once the payer has signed the direct debit mandate, electronically or manually, they need to take no further action)
Improved retention rate (vs. card “rebilling” which can pose problems with expiry dates and spending limits)

Setting up a SEPA Direct Debit (Core or B2B) is quick and easy using our API, which allows the direct debit mandate to be generated & signed online, as well as processing your direct debit orders and managing outstanding payments.

The registration of SEPA B2B mandates for Italian debtors and the initiation of the first direct debit follow specific rules. Please consult the documentation 👉 here for more information.

Main features of SEPA Core and B2B

ITEM	SDD CORE	SDD B2B
Target payee	Individuals (including self-employed) or Businesses	Businesses only
Lemonway submission deadline to be credited in E+1 (E=requested settlement date/banking business day)	E-2 before 10:30 AM (Paris time) * Special rule for the first collection of a B2B Direct Debit on Italian IBANs: First SDD: E-14 before 10:30 AM (Paris time), calendar days. Second and further: E-2 before 10:30 AM (Paris time), banking business days
Lemonway direct debit process	The creditor (you) issues the direct debit instruction: the creation of an SDD Money-In transaction with a pending status The debtor's withdrawal/debit is carried out on E The debit amount is credited to the payment account on E+1: the initial transaction status is automatically changed from Pending to Completed In the event of an unpaid/returned direct debit: an SDD Money-Out transaction with a Completed status is automatically created in the payment account receiving the original transaction
Type of mandate	Core direct debit mandate	B2B direct debit mandate
Submission by the debtor of the signed mandate to his bank	Not required	Required
Notification of the debtor by the creditor prior to each debit	Required
Time limits for the debtor to dispute the debit (E = direct debit processing date = debit date)	From E to E + 8 weeks: the debtor can object to his bank without any supporting documents and the debtor can be immediately re-credited/the creditor can be immediately debited on receipt of the "return"/unpaid amount by Lemonway. From E + 8 weeks to E + 13 months: dispute by the debtor is possible, although re-crediting is not automatic and subject to a presentation by the creditor of evidence of the signed mandate/delivery of the product

💡 Learn more about time limits for contesting and managing unpaid/returned direct debits
If payment by SEPA Direct Debit is not included in your contract and you wish to activate it, 👉 contact us with the expected annual volume and average transaction amount.

Main statuses of a SEPA Direct Debit

SEPA Direct Debit/SDD Mandate can have multiple statuses:

✅ Completed: the transaction was successful and the transaction amount is credited to the target payment account, increasing the account balance.
💬 Pending: the transaction has not been credited to the target payment account, but it could still potentially change to a Completed or Error status. The Pending status is also used for planned transactions, such as subscriptions, we will have the future SDD mandates already in the dashboard.
🚫 Error: The transaction is incomplete and failed to be credited to the target payment account. This status indicates that the transfer has been cancelled by Lemonway (e.g., incorrect beneficiary information provided by the bank) or on your instructions (chargeable/conditional service).

Cancel a SEPA Direct Debit/SDD Mandate

A Sepa Direct Debit (SDD) Core/B2B payment instruction can be cancelled manually from your dashboard, providing that it has not been sent to the bank and carried out by Lemonway.

From the Dashboard, click Transactions. A menu unfolds.
Click All.
Search for the transaction ID in the first column.
Click the ID number.
On the Transaction details page, click Cancel operation.
Enter your password for confirmation.
Click Confirm.

The status of the relevant SDD transaction is then automatically changed from Pending to Error.

Refund a SEPA Direct Debit

Direct debit refunds are not automated and require you to issue an outgoing bank transfer from the original payee's payment account to the original payer's bank account, previously entered in the payment account.

💡 Learn more on 👉 how to withdraw funds from a payment account.

My customer says they have been debited but the transaction is not showing as completed

In very rare cases (a bug in the bank information forwarded to Lemonway), an SDD mandate that has actually been debited from your customer's account may appear in your dashboard as pending or error.

If this happens, get in touch with us with the information listed below:

URL of the relevant platform
Transaction ID (or transaction date and amount if not available)
Proof the customer has been debited (bank statement showing the debit)
Your instructions: either change the status of the transaction to successful or refund the transaction

💡 Once we have confirmed that the transaction is carried out, we will then be able to refund the transaction on your instructions.

Main reasons for returned SEPA Direct Debit (SDD) payments

We’ve listed the main reasons for Returned SDDs (Core or B2B), as well as the recommended follow-up steps.

The return codes and their description are automatically included in the notes on the returned SDD transaction in your system.

RETURN CODE	CODE DESCRIPTION	RECOMMENDED CREDITOR ACTION
AC01	Incorrect bank details (e.g. invalid debtor IBAN, debtor's bank account not denominated in EUR)	• Contact the debtor to check the bank details • Correct the debtor's bank details in your Company system • Issue a new direct debit instruction OR • Decide on an alternative method of payment (e.g. bank transfer) with the debtor.
AC04	Account closed	• Contact the debtor to obtain new bank details • Correct the debtor's bank details in your Company system • Issue a new direct debit instruction OR • Decide on an alternative method of payment (e.g. bank transfer) with the debtor.
AC06	Blocked account	• Contact the debtor to obtain new bank details • Correct the debtor's bank details in your Company system • Issue a new direct debit instruction OR • Decide on an alternative method of payment (e.g. bank transfer) with the debtor.
AC13	The Debtor account is not a business account (SDD B2B only)	• Contact the debtor to obtain his business/corporate account details • Correct the debtor's bank details in your Company system • Issue a new direct debit instruction OR • Decide on an alternative method of payment (e.g. bank transfer) with the debtor. OR • Set up a Core direct debit mandate with the debtor • Issue a new direct debit instruction
AG01	Transaction not permitted on this type of account (e.g. savings account)	• Contact the debtor to obtain new bank details • Correct the debtor's bank details in your Company system • Issue a new direct debit instruction OR • Decide on an alternative method of payment (e.g. bank transfer) with the debtor.
AM04	Insufficient funds	• Ask the debtor to add funds to his account • Issue a new direct debit instruction OR • Decide on an alternative method of payment (e.g. bank transfer) with the debtor.
AM05	Duplicate	• Determine if it is a genuine duplicate.
MD01	No mandate (Mandate on the debtor's account no longer valid, mandate cancelled by the debtor, refund of an unauthorized transaction, B2B mandate not submitted to the bank)	• Contact the debtor to obtain more information/to ask him to give the signed mandate to his bank (in the case of SDD B2B) • Issue a new direct debit instruction OR • Decide on an alternative method of payment (e.g. bank transfer) with the debtor.
MD07	Debtor deceased	• Terminate the debtor's contract
MS02	Refused by debtor/unknown reason	• Contact the debtor
MS03	Unknown reason (most common return code/catch-all)	• Contact the debtor

Note

The relevance of the return codes depends on the debtor's bank. Lemonway has no additional information and is unable to contact the debtor's bank if a return code appears to be incorrect or unclear.