SEPA Direct Debit Scheme
The SEPA Direct Debit scheme is a payment system that allows businesses to collect payments from customers located within the Single Euro Payments Area (SEPA) using a standardized set of rules and procedures. The SEPA Direct Debit scheme was created to simplify and streamline cross-border direct debit transactions, making it easier for businesses to collect payments from customers in other European countries.
The SEPA Direct Debit scheme is based on the use of a mandate, which is an authorization given by the customer to the business to collect payments via direct debit. The mandate includes information such as the customer's name, address, bank account details, and the amount and frequency of payments to be collected. Once the mandate has been obtained, the business can submit direct debit instructions to their bank or payment service provider, which will then process the payments on the agreed-upon dates.
The SEPA Direct Debit scheme is governed by a set of rules and procedures that have been established by the European Payments Council (EPC), which is responsible for maintaining and developing the SEPA payment schemes. The rules and procedures cover areas such as the use of mandates, the submission of direct debit instructions, the processing of payments, and the handling of disputes and errors.
The SEPA Direct Debit scheme offers several benefits to businesses, including:
A standardized and streamlined process for collecting payments across Europe
Reduced costs and improved efficiency compared to other cross-border payment methods
Improved cash flow management and reduced risk of late or missed payments
The ability to offer customers a convenient and flexible payment option
Overall, the SEPA Direct Debit scheme is a valuable tool for businesses looking to collect payments from customers located within the SEPA region. By following the standardized rules and procedures, businesses can streamline their payment collection process and improve their cash flow management, while also offering a convenient and flexible payment option to their customers.
Historically: the SEPA Direct Debit scheme for CORE mandates is based on the framework that was already in place in countries like Germany and the Netherlands.
To take payments with SEPA Direct Debit, you need to follow these general steps:
Obtain a SEPA Direct Debit Mandate: The first step is to obtain a mandate (usually once) from your customer. The mandate is an authorization given by the customer to allow you to collect payments from their bank account via direct debit. You can use electronic or paper-based mandate forms to obtain the necessary authorization.
Check the Mandate Information: Once you have the mandate, you should check that all the necessary information is complete and accurate, including the customer's name, address, bank account details.
Submit Direct Debit Instructions: Once you have a valid mandate, you can submit direct debit instructions to your bank, payment service provider or an intermediate party. The instructions will include details such as the amount and date of the payment, the customer's bank account details, and your creditor identifier (CID) or creditor name and address. The format used is a pain.008.
Process the Payments: Your bank or payment service provider will process the direct debit instructions and initiate the payment on the agreed-upon date. The payment will be debited from the customer's bank account and credited to your account. You'll receive the info in the account information visually but also structured via MT94X, CAMT, CODA...)
Manage Disputes and Errors: If there are any disputes or errors with the payment, you will need to manage them according to the SEPA Direct Debit scheme rules and procedures. This may involve resolving issues with the customer or their bank, providing evidence to support the payment, or initiating a refund.
It's important to note that there are specific requirements and rules that must be followed when using SEPA Direct Debit, including obtaining a valid mandate, providing the necessary payment information, and following the scheme's dispute and error management procedures. Working with a third party like an accounting package or parties with a lot of experience in managing direct debits can surely help you ensure that you are following the correct procedures and have access to the necessary tools and resources to manage the payment process effectively.
SEPA Direct Debit transactions meaning
SEPA Direct Debit transactions are electronic payments that allow businesses to collect payments from customers' bank accounts in euros. Here is a brief explanation of the meanings of SEPA Direct Debit transaction types:
Core Direct Debit (CORE): This is the most common type of SEPA Direct Debit transaction. It is used for recurring payments that are fixed in amount and occur on a regular basis, such as monthly rent payments.
Business to Business Direct Debit (B2B): This transaction type is used for business-to-business payments only. It is designed to be more secure and efficient for high-value transactions, and has shorter timeframes for both notification and refund.
Both types of direct debits exist in 2 flavours.
Recurring Direct Debit: This type of transaction is used for recurring payments, such as monthly subscriptions or membership fees. It can be initiated with a single authorization from the customer, and can be ongoing until the customer cancels the authorization. It can be a Core or B2B Direct Debit.
One-off Direct Debit: This type of transaction is used for one-time payments, such as paying an invoice or making a donation. It can be initiated with a single authorization from the customer. It can be a Core or B2B Direct Debit. One-off Direct Debits are not used a lot. This is more admin work and you can use the mandate only once. When it fails (no money on the account), you can't reuse it.
SEPA Direct Debit transactions must be initiated with a valid mandate from the customer, which is an authorization that allows the business to collect payments from their bank account via direct debit. The mandate must include specific information about the payment amount, frequency, and timing, as well as the customer's bank account details and the creditor's identifier or name and address. The use of SEPA Direct Debit transactions is subject to specific rules and requirements set out by the European Payments Council (EPC).
Advantages of SEPA direct debit
SEPA Direct Debit is a payment method that allows businesses and individuals to collect payments from customers in euros throughout the Single Euro Payments Area (SEPA). Here are some advantages of using SEPA Direct Debit:
Wide coverage: SEPA Direct Debit allows businesses to collect payments from customers in 41 countries, which makes it an excellent payment option for businesses with a large customer base in Europe. It covers more than 500 million bank accounts all over Europe. Which is more than other popular recurrent payment methods like credit cards, paypal...
Low transaction costs: SEPA Direct Debit is a cost-effective payment method for businesses as it has lower transaction fees compared to other payment methods such as credit cards.
Efficient: SEPA Direct Debit is an automated payment method that allows businesses to collect payments on a regular basis without the need for manual intervention. This makes it an efficient payment option for businesses that have to collect payments on a recurring basis.
Control on the incoming payment flows: the business can decide when to collect, although the payment frequency is best to be communicated to the debtor.
High customer friendliness: customers are less confronted with extra administration. If there is a trust in the brand of the creditor, this is highly efficient way of working.
Easy reconciliation: SEPA Direct Debit allows businesses to easily reconcile their accounts as they receive payment information from the bank in a standard format.
Higher loyalty: for a business with a higher number of recurrent payments utilized, there is higher loyality which means also reduced costs of churn and recurrent customer acquisition efforts.
Overall, SEPA Direct Debit is a reliable and cost-effective payment option for businesses that need to collect payments from customers in Europe.
Disadvantages of SEPA Direct Debit
While SEPA Direct Debit has many advantages, it also has a few potential disadvantages that should be considered:
Lack of control for the customer: Once a customer authorizes a SEPA Direct Debit payment, the customer has limited control over the timing and amount of subsequent payments. This can be a disadvantage for customers that require more control over their payments. Therefore a merchant should be very strict and have clear agreements in how the collection process has been done and make no errors.
Authorization process: Businesses must obtain written or electronic authorization from their customers before initiating SEPA Direct Debit payments. This can be a time-consuming process, especially if the business has a large customer base.
Risk of chargebacks: Customers have the right to request a chargeback for CORE SEPA Direct Debit transaction within eight weeks of the payment date. This can be a disadvantage for businesses that have a high risk of chargebacks. Note: if the mandate is not correctly negotiated, not signed correctly or didn't contain all legal requirements, the merchant has a risk of 13 months. However this risk is not a disadvantage as the merchant can easily mitigate this by using a mandate service provider like Twikey or do the right thing...
Limited currency options: SEPA Direct Debit payments are only available in euros, which can be a disadvantage for businesses that operate in multiple currencies.
Country coverage limited: SEPA Direct Debit is only available in 41 countries within the Single Euro Payments Area, which can be a disadvantage for businesses that operate outside of this region. For international businesses, a combination with credit card (Mastercard, Visa), Paypal, Bacs can be usefull.
Overall, SEPA Direct Debit is a reliable and cost-effective payment option for businesses that need to collect payments from customers in Europe, but it may not be the best fit for all businesses. Twikey has a focus on reducing the disavantages to a maximum.
SEPA Direct Debit success rate
The success rate of SEPA Direct Debit transactions can vary depending on several factors such as the payment amount, payment frequency, and the payment history of the customer. However, overall SEPA Direct Debit transactions have a high success rate, with a low percentage of transactions being returned as unpaid.
According to interviews with different bankinstances, the overall success rate of SEPA Direct Debit transactions in 2022 was 97,06%. This means that only 2,94% of transactions were returned as unpaid or failed for various reasons, such as insufficient funds, incorrect bank details, or authorization issues. Compared to recurrent credit cards this is a serious better result: recurrent credit cards result in 15% declines (2021 figures in US). Within Twikey, thanks our advanced mechanims, we further reduce these percentages. to 99,78 % successratio.
Chargebacks of 13 months are not known to Twikey (as mandates are correctly negotiated) but from the banking associations we got the feedback that percentage is between 0,5% en 0,3% globally over the country, depending on the country. High risk sectors which banks don't easily approve like telesales, call centers, dating sites are responsible for a larger part of the rejects in combination with fraud cases or companies going bankrupt.
Direct Debit success rate with failure management
It's worth noting that the success rate of SEPA Direct Debit transactions can be improved by following best practices such as obtaining correct customer details, verifying bank account information, maintaining good communication with customers and providing retry's, payment alternatives and sending new mandate invites. Businesses should also ensure that they have a clear payment policy and process in place to minimize payment errors and reduce the risk of unpaid transactions.
According to the SDD software Twikey, the overall success rate of SEPA Direct Debit with professional failure management in 2022 was 99,78%. This means that only 0,22% of the payments were unpaid and needed to be followed up via an official reminder.
SEPA Direct Debit offers several customer protection measures to ensure that customers are not subjected to unauthorized or fraudulent transactions. Here are some of the customer protection measures provided by SEPA Direct Debit:
Direct Debit Guarantee: SEPA Direct Debit (CORE) has a Direct Debit Guarantee scheme, which ensures that customers are entitled to a full refund for any unauthorized or fraudulent transaction. Customers can request a refund from their bank within eight weeks of the transaction date, and the bank must refund the customer within ten working days. If the Direct Debit has not correctly been negotiated, this is 13 months.
Authorization process: Before initiating a SEPA Direct Debit transaction, businesses must obtain written or electronically signed authorization from their customers. This authorization can be revoked at any time by the customer, providing an additional layer of protection against unauthorized transactions.
Transaction limits: SEPA B2B Direct Debit can have a transaction limit that prevent businesses from debiting a customer's account higher amounts. For consumers it is possible to specify that direct debits can't be executed from a foreign account.
Dispute resolution: If a customer disputes a SEPA Direct Debit transaction, the bank must investigate the dispute and provide a resolution within a specified timeframe. This ensures that customers are protected against fraudulent or unauthorized transactions.
Overall, SEPA Direct Debit provides strong customer protection measures that ensure that customers are not subjected to unauthorized or fraudulent transactions. However, customers should also be aware of their responsibilities, such as keeping their bank account details secure and informing their bank of any unauthorized transactions.
SEPA payments are processed through the SEPA payment system, which is a real-time gross settlement system. The processing time for SEPA payments depends on several factors such as the type of payment, the time of day the payment is submitted, and the bank's processing time.
For normal SEPA Credit Transfers, which are one-time payments, the processing time is usually one business day, although it can take up to three business days for the payment to be credited to the recipient's account, depending on the banks involved in the transaction. The instant scheme works quicker and most banks are already in the process of supporting this. In the instant scheme it is directly within seconds transferred. The initiative however is always at the side of the customer which results in a getting paid experience which is not really predictable.
For SEPA Direct Debit payments, the collection event can be triggered one-time or on a recurring base. The processing of the collection takes following schedule into account. When the collection instruction is delivered before the cut-off time of the bank, which is depending from bank to bank, the collection date will be day + 1. Getting the feedback normally takes day + 2 & day + 3.
It's important to note that the processing time for SEPA payments can also be affected by public holidays and weekends, as banks may not process payments during these periods. Businesses and individuals should also check with their bank to confirm the cut-off times for submitting SEPA payments, as this can vary between banks and can affect the processing time of the payment.
Overall, SEPA payments are generally processed quickly, but it's important to take into account the various factors that can affect the processing time of the payment.
SEPA Direct Debit timing terms
SEPA Direct Debit allows businesses to collect payments directly from customers' bank accounts on a one-time or recurring basis. The timing terms for SEPA Direct Debit payments can vary depending on the payment schedule agreed between the business and the customer. Here are some of the common timing terms used for SEPA Direct Debit payments:
SEPA Collection Date: This is the date on which the payment is due to be collected from the customer's bank account. This date is also called the Pivot date.
SEPA Advance Notice Period: SEPA Direct Debit requires that businesses provide advance notice to customers before collecting a payment from their bank account. The advance notice period can vary depending on the payment frequency, but it must be at least 14 days before the collection date. It is possible to deviate from this 14 days if this is correctly communicated. Eg. Via terms and conditions or via an invoice.
SEPA Payment Cycle: The payment cycle determines how often the payment will be collected from the customer's bank account. The payment frequency can be daily, weekly, monthly, quarterly, or annually, depending on the agreement between the business and the customer.
SEPA Refund Period: Customers have the right to request a refund for any SEPA Direct Debit payment within eight weeks of the payment date when the mandate signed is a CORE SEPA Direct Debit mandate. The refund period provides an additional layer of protection for customers and ensures that they can dispute any unauthorized or fraudulent transactions. Exceptionally, if proven, it can be 13 months. B2B mandates don't have a refund period.
Overall, SEPA Direct Debit provides businesses with flexibility in terms of payment scheduling and allows them to collect payments from customers quickly and efficiently. However, it's important to ensure that the timing terms are agreed between the business and the customer and that all necessary notifications and advance notices are provided to customers to ensure a smooth payment process.
SEPA Requested Collection date meaning
The requested collection date refers to the specified date on which a payment should be collected from the payer's bank account using the SEPA Direct Debit scheme. In some cases it is also called the pivot date.
When initiating a SEPA Direct Debit, the creditor (the party receiving the payment) specifies a requested collection date, which is the date they desire the payment to be debited from the customers or payer's account. The requested collection date serves as an instruction to the payer's bank on when to initiate the collection process.
The requested collection date or pivot date must take into account the processing delay in direct debits. For example, if a payment instruction is submitted by a business on Monday evening, the receiving bank of the creditor will only take it into processing on Tuesday and the requested collection date can only be Wednesday.
Cut-Off Time refers to the latest time by which a payment instruction must be submitted to a bank in order to be processed on the same business day. It's the deadline by which a payment instruction must be received by the bank for it to be included in the batch of payments that will be processed that day.
The cut-off time for SEPA payments can vary depending on the bank, the type of payment, and the country in which the payment is being made. Generally, the cut-off time for SEPA Direct Debits is earlier than for SEPA Credit Transfers.
For example, if the cut-off time for a SEPA Credit Transfer is 3 PM, any payment instruction submitted after that time will not be processed until the next business day (except for Instant Credit Transfers). It's important to note that cut-off times can also vary for international payments or payments involving multiple banks, and may be subject to additional fees or processing times. For Direct Debit we see cut-off times of 9 AM to 1 PM.
Knowing the cut-off time for SEPA payments is important for businesses and individuals to ensure that their payments are processed in a timely manner. Failing to submit a payment instruction before the cut-off time can result in delays in processing and the payment may not be credited to the beneficiary's account until the next business day.
Timeline feedback SEPA Direct Debit payments
The timeline of feedback for a SEPA Direct Debit transaction varies depending on the parties involved and the stage of the transaction. Here is a general timeline of the feedback for a typical SEPA Direct Debit transaction:
Day 0: The creditor has a billing run and starts preparing all collections.
Day 1: The creditor submits the SEPA Direct Debit transaction to its bank (the creditor's bank) before the cut-off time
Day 1: The creditor's bank sends the SEPA Direct Debit transaction to the debtor's bank (the debtor's bank) (evening/nightly process)
Day 2: The debtor bank processes the Sepa Direct Debit transactions. If the Creditor bank and the Debtor bank is the same the reporting is prepared.
Day 3: The reporting given back by the Creditor bank contains the fact that instruction batch has been delivered + all the information the creditor bank has already received back. (in most of the cases this is the internal information where creditor bank and debtor bank are the same)
Day 4-5: Reporting from the other banks is arriving. Cross-border can be slower. If transactions don's succeed, this is creates an R-message. The most common R-message is not-sufficient funds; typicaly AM04 or MS03.
Day 5-8 weeks: If the debtor disputes the transaction or if there is a technical issue with the transaction, the debtor's bank will send a R-message to the creditor's bank.
Day 7-8 weeks: The creditor's bank receives the R-message from the debtor's bank and sends it to the creditor.
It's important to note that these timelines can vary depending on the banks involved and the specific circumstances of the transaction. Additionally, in some cases, the feedback timeline for a SEPA Direct Debit transaction can be shorter or longer than the timeline outlined above.
Sepa Direct Debit failures are communicated through an R-message. An R-message consists of a reason code and a R-type. There are 6 types of R-messages. (see next topic).
In most cases SEPA Direct Debit (SDD) transactions fail due to following reasons::
Insufficient funds: If the debtor's account does not have enough funds to cover the transaction amount, the transaction may fail. (Return)
Invalid bank account details: If the creditor enters incorrect or invalid bank account details, the transaction may fail. (Reject)
Authorization issues: If the debtor has not authorized the transaction, the transaction may fail. (Reject)
Technical errors: Technical issues such as network outages or software bugs can also cause SDD transactions to fail. (Reject)
The customer doesn't agree: If The debtor disputes the transaction and requests a refund. (Refund or Refusal if done before the due date)
Blocked account: In some cases, banks may block an account due to suspected fraud or suspicious activity, which can result in SDD transactions failing. (Reject)
When an SDD transaction fails, the creditor and debtor banks will send notifications to the creditor . The notification will indicate the reason for the failure and may include instructions for how to correct the issue and resubmit the transaction.
There are 6 types of R-messages: Revocation, Refusal, Reject, Refund, Reversal and Return.
Revocation: a request from the Creditor or the Creditor Bank to recall/cancel the instruction for a collection prior to settlement. The Creditor can recall/cancel the entire SEPA Direct Debit batch. These instructions should be sent at D-1 (Target day) at the latest before cut-off time of the bank.
Refusal: a claim initiated by the Debtor towards his bank before settlement for any reason, demanding not to pay a specific SEPA Direct Debit collection. It is possible to refuse the SEPA Direct Debit collection until 1 day (Banking business day) before the due date of the SEPA Direct Debit. This only works when the transaction has already been delivered some time in advance.
Reject: a SEPA Direct Debit collection that cannot be executed prior to inter-bank settlement by the Creditor Bank or Debtor Bank (invalid format, wrong IBAN, account closed, blocks set by the Debtor...)
Refund: a request from the Debtor for a refund of an executed SEPA Direct Debit Core collection within specified timelines (up to 8 weeks for authorized collections and up to 13 months for unauthorized collections). When a B2B SDD was used it will only be possible to have a refund for an unauthorized collection (e.g. no valid mandate). A Refund does not discharge the Debtor from his legal obligation to pay the Creditor in case he was provided the agreed service.
Reversal: is used when the Creditor realises that a direct debit collection should not have been processed after the Clearing & Settlement and reimburses the Debtor of the erroneous collection. This message is only exceptionally used and contains high risks as the Debtor might have refused or refunded the transaction already.
Return: a SEPA Direct Debit collection that is diverted from normal execution after inter-bank settlement and is initiated by the Debtor Bank (e.g. in case of insufficient funds).
Some of the communication flows are in the CAMT, MT94X of the bank (or a local variant like CODA) (Refusal, Reject, Refund, Return). Reversals and Revocations are a message from the creditor to the creditor bank and is done via a pain.007.
Soft Failures SEPA Direct Debit: insufficient funds
Insufficient funds is the most common reason for SEPA Direct Debit transaction failures. It occurs when the debtor's account does not have enough funds to cover the transaction amount. When the debtor's bank checks for available funds and finds that there are not enough funds, the transaction will fail.
What are the insufficient funds r-codes for SEPA Direct Debit
These insufficient funds r-codes are considered soft failures:
- MS03 Reason not specified.
- AM04 Insufficient funds
What is the real failure reason for MS03 SEPA r-code?
Even though the official explanation is "Reason Not Specified," the correct reason in most of the cases is 'insufficient funds in the debtor's account'. The bank uses this error code for privacy reasons.
How to resolve insufficient funds SEPA Direct Debit
If a SEPA Direct Debit insufficient funds issue does occur, the merchant should not forward the customer to the accounts receivable department. In fact, SEPA Direct Debit failure management tools can solve most uncollected direct debit transactions. Twikey is a SEPA Direct Debit processing software that can enable this easily. If done well, you can win up to 90,50 % of the manual follow-up work associated to this type of failure.
How to prevent insufficient funds SEPA Direct Debit as a merchant
To prevent insufficient funds issues with SEPA direct debits as a merchant, you can take the following steps:
Verify the customer's account information: Before initiating a SEPA direct debit, verify that the customer has provided accurate and up-to-date account information, including their account number and BIC code.
Communicate payment details: Provide customers with clear and concise payment details, including the payment amount, payment frequency, and payment due date. This will help ensure that customers have enough funds in their accounts to cover the direct debit. Last but not least, do communicate with each invoice upfront that a transaction is planned on a certain date.
Monitor payments: Keep track of your direct debits and monitor your payment notifications to quickly identify any issues with insufficient funds. This will allow you to take prompt action to resolve the issue with the customer and minimize any disruption to your business operations.
Use payment processing software: Consider using payment processing software like Twikey that can increase the SEPA Direct Debit success rate. It is possible to activate specific functionalities: fraud rules in onboarding, transaction-level risk rules, IBAN switching services, day to day mandate management, pre-notifications, specific collection date by customer profile, ... . This can help reduce the risk of insufficient funds issues and save you time and money.
By taking these proactive steps, you can help prevent insufficient funds issues with SEPA direct debits and reduce the risk of payment disruptions for your business.
Hard failures SEPA Direct Debit - chargeback
A chargeback for a SEPA direct debit occurs when a customer disputes a transaction and requests a refund from their bank. This can happen when the customer believes that the transaction was unauthorized, or that the goods or services were not delivered as expected. Of course, it is also possible that the merchant is dealing with a fraudster who is falsely requesting a chargeback.
- within 8 weeks: the debtor can recover the money collected within the 8 weeks without a specific reason. However, this does not mean that the debt goes away; it does give the debtor and supplier time to work out a solution.
- after 8 weeks: the debtor has 13 months to dispute the payment. In this case, the debtor must prove that the mandate was not properly concluded. This means, for example, that there is no signature on the mandate or the mandate doesn't contain the correct text or fields.
It's important to note that chargebacks can have a negative impact on a merchant's reputation and financial stability, especially if they occur frequently. To avoid chargebacks, merchants can use SEPA Direct Debit processing software like Twikey. This can help reduce the risk of chargebacks and save time and money.
R-Codes SEPA Direct Debit chargebacks
These are considered hard failures.
- MD06 Disputed authorized transaction. Debtor has requested a refund within the 8 weeks refund period.
- MS02 The debtor refuses this particular collection. This code may be received pre- or post-settlement, depending on how quickly the debtor bank responds to the refusal.
- SL01 Specific service offered by the Debtor Bank. The creditor has been blocked by the debtor (blacklisted) or the collection amount is too high.
How to resolve chargebacks SEPA Direct Debits
If a SEPA Direct Debit chargeback does occur, the merchant should not forward the customer to the accounts receivable department. In fact, SEPA Direct Debit failure management can solve most uncollected direct debit transactions. Twikey is a SEPA Direct Debit processing software that can enable this easily when on average there is to 57,75% less manual follow-up associated to this type of failure.
How to prevent chargebacks SEPA Direct DEBIT as a merchant
To prevent chargebacks for SEPA direct debits, merchants can take several proactive steps:
Clearly communicate payment details: Provide customers with clear and concise payment details, including the payment amount, payment frequency, and payment due date. This will help ensure that customers understand the terms of the transaction and reduce the likelihood of disputes.
Verify customer account information: Before initiating a SEPA direct debit, verify that the customer has provided accurate and up-to-date account information, including their account number and bank routing information.
Provide excellent customer service: Respond to customer inquiries and complaints promptly and professionally. Addressing customer issues can help prevent chargebacks and preserve your reputation.
Offer refunds or exchanges: If a customer is unhappy with their purchase or service, offer a refund or exchange to resolve the issue before it escalates into a chargeback.
Use payment processing software: Consider using payment processing software like Twikey that can increase the SEPA Direct Debit success rate. It is possible to activate specific functionalities: fraud rules in onboarding, transaction-level risk rules, IBAN switching services, day to day mandate management, pre-notifications, specific collection date by customer profile, ... . This can help reduce the risk of chargeback issues and save you time and money.
Exceptionally it could also be an indication of fraud: someone using the iban of someone else. This happens typically when there are no or weak verifications in the mandate signing process.
By taking these proactive steps, merchants can help prevent chargebacks and reduce the risk of payment disruptions and financial losses. It's also important to have a clear understanding of SEPA direct debit regulations and dispute resolution procedures to ensure that you can respond effectively to any customer disputes or chargebacks that may arise.
Technical failure SEPA Direct Debit
A technical failure with a SEPA direct debit can occur due to a variety of reasons, such as invalid account information, incorrect bank routing details, or an issue with the payment processing system. Technical failures can result in the direct debit being cancelled, and the merchant not receiving payment for the transaction.
If a technical failure does occur, the merchant should promptly investigate the issue and work to resolve it with the customer. In some cases, the merchant may need to initiate a new direct debit or request payment through an alternative method.
It's important for merchants to be aware of SEPA regulations and guidelines to ensure compliance and avoid technical failures. They should also work closely with their payment processing provider and bank to ensure that they are using the most reliable and secure payment methods and systems.
R-Codes SEPA Direct Debit MANDATE FAILURE
These are considered as technical failures.
- AC01 IBAN or IBAN/BIC combination of debtor is incorrect.
- AC04 Debtor account closed.
- AC06 Account of the debtor blocked (eg. deceased/bankruptcy) or blocked for SDD transactions by the debtor.
- AC13 Account type not allowed for SEPA direct debits.
- AG01 Account not allowed for SEPA direct debits for regulatory reasons.
- AG02 Bank Operation code specified in the message is not valid for the bank.
- AM05 Duplicate collection.
- BE05 Incorrect Creditor Identifier code.
- FF01 File Format incomplete or invalid.
- MD01 No valid mandate (no longer valid, not correctly registered, invalid sequence type).
- MD02 Mandate data missing or incorrect. Two FIRST transactions were received for the same mandate.
- MD07 Debtor deceased.
- PY01 Not routable. This can occur when the debtor's bank does not handle SDD's.
- RC01 Bank Identifier (BIC) incorrect.
- RR01 The debtor account number is missing.
- RR02 The debtor name and/or address is missing.
- RR03 The creditor name and/or address is missing.
How to resolve canceled SEPA Direct Debit mandates
If you are a merchant facing chargeback issue with a SEPA direct debit, it is not advisable to immediately forward the customer to the accounts receivable department. In fact, SEPA Direct Debit failure management can solve most uncollected direct debit transactions. Twikey is a SEPA Direct Debit processing software that can enable this easily where this specific part of the process can save up to 70,42 % of the manual work associated to this type of failure.
How to prevent canceled SEPA Direct Debit mandates
To prevent technical failures with SEPA direct debits, merchants should ensure that they have accurate and up-to-date customer account information, including the correct bank routing details. They should also use a reliable payment processing system that can detect and flag any issues with the transaction before it is initiated.
SEPA Direct Debit notifications for the debtor, or the customer who is authorizing the direct debit, typically include the following:
Pre-notification: This is a notification that is sent to the customer before the direct debit transaction is initiated. The pre-notification typically provides details about the payment, including the payment amount, payment date, and the name of the merchant. This is mostly done with an invoice or in a contract.
Confirmation of direct debit: This notification is sent to the customer to confirm that the direct debit transaction has been initiated and that the funds will be debited from their account on the agreed-upon date.
Direct Debit Mandate amendment: This notification is sent to the customer when there are changes made to the Direct Debit Mandate. This could be changes in the payment amount, payment date or the merchant's details.
Refund notification: This notification is sent to the customer to confirm that a refund has been initiated for a previous direct debit transaction.
Failed direct debit notification: This notification is sent to the customer to inform them that the direct debit transaction has failed due to insufficient funds, incorrect account information, or other technical issues.
Advance notice of direct debit: This notification is sent to the customer to inform them of a direct debit that will be processed on their account in the near future.
SEPA Direct Debit notifications for the debtor are important for customers to keep track of their transactions and ensure that payments are being processed correctly. It's important to review and confirm the details of the notifications to ensure that they are accurate and to contact the merchant or the bank if there are any issues or discrepancies.
Is pre-notification of a SEPA Direct Debit mandatory?
Yes, pre-notification of a SEPA Direct Debit is mandatory according to the SEPA Direct Debit Core Rulebook. The pre-notification must be sent to the debtor (the customer authorizing the direct debit) at least 14 days before the payment due date. The pre-notification must contain details about the payment, including the payment amount, payment date, and the name of the merchant.
The purpose of the pre-notification is to give the debtor sufficient time to ensure that there are sufficient funds in their account to cover the payment, and to notify the merchant or the bank if there are any issues or discrepancies with the payment details.
It's important for merchants to ensure that pre-notifications are sent in a timely manner and that they contain accurate and up-to-date payment details. . In practice we see merchants use an invoice with a prenotification date or mention upfront in their contract or terms and conditions the planning of the transactions. The 14 days period is sometimes not a realistic way of working.
Cancel SEPA mandate notification
A SEPA Direct Debit mandate can be cancelled by the debtor (the customer authorizing the direct debit) at any time by contacting the merchant. Since Direct Debits are working the same all of Europe this is the correct way of working.
It is a good practise that the merchant sends a cancellation notification to the debtor after receiving the cancellation request. That way there is increased trust that the merchant does the right thing.
Cancelling a mandate is not the same as cancelling a contract e.g. a subscription. If a contract needs to be cancelled also, the mechant should be informed. Otherway around, if you cancel a subscription but you don't ask to cancel the mandate, the mandate still remains active for 36 months and could be immediately re-used without signature when services are picked up again.
Update SEPA IBAN notification
As a merchant, it's important to keep customer information up to date to avoid payment failures and chargebacks. If the merchant becomes aware of an IBAN change before the customer notifies them, the merchant should reach out to the customer to confirm the updated IBAN and make the necessary changes in their system. This happens when a bankmoving service is involved.
In addition, it is a good practise that the merchant should send a notification to the customer confirming that the SEPA Direct Debit information has been updated with the new IBAN. The notification should include the following information:
Confirmation that the SEPA Direct Debit information has been updated with the new IBAN.
The SEPA Direct Debit mandate reference number.
By promptly updating customer information and providing confirmation of the update, merchants can avoid payment failures and maintain good relationships with their customers.