What happens in the event of unpaid SEPA Direct Debits?

Updated June 30, 2023 14:40

Introduction

Discover how to effectively address unpaid SEPA Direct Debits and ensure seamless financial transactions for your business. In this article, we will provide you with comprehensive insights and strategies to overcome issues related to unpaid SEPA Direct Debits.

Unpaid SEPA Direct Debits: How to Resolve Payment Issues?

Occasionally, complications may arise, resulting in unpaid Direct Debit transactions. In this article, we will delve into the reasons behind such occurrences and present effective solutions to resolve these payment issues.

Unpaid SEPA Direct Debits refer to instances where a buyer's bank account lacks sufficient funds to fulfil a payment request. When a SEPA Direct Debit remains unpaid, it can disrupt regular cash flow and create inconveniences for businesses.

Common Reasons for Unpaid SEPA Direct Debits

1. Insufficient Funds: The primary reason for unpaid Direct Debits is insufficient funds in the customer's bank account. This can occur due to various factors, such as unexpected expenses, inaccurate financial planning, or temporary cash flow constraints. To mitigate this issue, customers should ensure adequate funds are available in their accounts before the payment due date.

2. Technical Errors: Occasionally, technical errors may occur during the payment process, leading to unpaid SEPA Direct Debits. These errors can range from inaccurate customer account details to system glitches.

For more information, please consult: Main reasons for returned SEPA Direct Debit (SDD) payments

Resolving Unpaid SEPA Direct Debits

To address unpaid SEPA Direct Debits effectively, businesses can follow these recommended steps:

1. Customer Communication: Establish clear lines of communication with customers to promptly notify them of the unpaid Direct Debit. Communication channels can include email, SMS, or traditional mail. It is crucial to provide customers with detailed information regarding the failed payment and the subsequent steps required to resolve the issue.

2. Payment Recovery Options: Provide customers with alternative payment options to recover the unpaid amount. This could involve setting up a repayment plan, allowing customers to make manual payments, or utilizing other suitable payment methods. Offering flexible options can enhance customer satisfaction and increase the likelihood of successful payment recovery.

3. Reconciliation and Monitoring: Regularly reconcile payment records and monitor the status of unpaid SEPA Direct Debits. Implement robust tracking systems to identify recurring issues or patterns. By promptly addressing and rectifying any discrepancies, businesses can maintain a healthy financial ecosystem and minimize the impact of unpaid transactions.

Unpaid SEPA Direct Debits can pose challenges, but with the right strategies and proactive measures, these issues can be successfully resolved. By understanding the common reasons behind unpaid transactions and implementing practical resolution steps, you can ensure smoother financial operations and maintain strong customer relationships.

Actions to take on the Lemonway Platform

On the settlement or due date of a SEPA Direct Debit (SDD Core or B2B) or just after that, the debtor's bank can carry out an interbank return to the creditor's bank for their own reasons (insufficient funds, no mandate, debtor account blocked or closed).

Returns have to be made within 5 banking business days for an SDD Core transaction and 3 banking business days for an SDD B2B transaction, or in response to a request from the debtor (refund request).

Returned SDDs result in:

A re-credit of the total amount of the debt to the debtor (partial refunds are not permitted) from the debtor's account
A debit of the same amount from the creditor's account

SEPA Direct Debit payment disputes

👉 Identify a returned SEPA Direct Debit (SDD) in the dashboard

👉 SEPA Direct Debit (SDD) return deadlines

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

Identify a returned SEPA Direct Debit (SDD) in the dashboard

From the Dashboard, click Transactions.
Click All.
Set the following filters:

Method: Direct Debit
Type: Outgoing
Status: Completed
Comment: Chargeback

An SDD return, just like a card chargeback, results in 2, or even 3, transactions on your dashboard:

The return transaction in the customer payment account to which the original transaction was credited, shows the reason for the return in the notes field (as reported to Lemonway by the debtor's bank) and the ID of the original transaction. In the event that the balance of the relevant customer payment account is insufficient for the return transaction to be debited, Lemonway automatically performs a P2P transfer from your merchant payment account (SC) to the relevant customer payment account for the shortfall before proceeding with the Return transaction.
The transaction corresponds to the return fee charged by Lemonway (P2P from your merchant payment account to the Lemonway payment account for the amount specified in your contract).

SEPA Direct Debit (SDD) return deadlines

The return requests initiated by the debtor are possible only for SDD Core. The SDD B2B cannot be disputed by the debtor. Only an interbank return can be applied.

D = debit date of the debtor's account/banking business days

Between D and D + 8 weeks: return possible with no reason/justification required from the debtor and automatically processed by the debtor's bank
Between D + 8 weeks and D + 13 months: return is only possible if the debtor disputes the payment on the grounds of an unauthorized transaction and subject to the debtor's bank undertaking the proof of consent verification procedure

The SDD B2B cannot be disputed by the debtor. Only an interbank return can be applied.

Main reasons for returned SEPA Direct Debit (SDD) payments

We have listed the main reasons for Returned SDDs (Core or B2B) and 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 payment method (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 payment method (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 payment method (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 payment method (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 payment method (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 payment method (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 canceled 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 payment method (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.