Return debits can be frustrating for both businesses and customers. In this article, you'll learn about the causes of return debits, their consequences and actions to take to avoid them. You will also learn which fees can be passed on to customers, as well as how a return debit can affect credit ratings.

What's in this article?

• What is a return debit?
  
• What causes return debits?
  
• How much does a return debit cost a business?
  
• Which fees can be passed on to the customer?
  
• How long does a return debit take to process?
  
• What are the potential consequences of return debits?
  
• What actions can be taken to avoid return debits?
  

What is a return debit?

A return debit, or "Rücklastschrift", is a returned SEPA Direct Debit, also known as a failed payment. As a result of a return debit, the payer's account is credited and the recipient's account is debited. A return debit can occur up to six weeks after a payment is debited.

Return debits typically incur costs for the customer as well as the business. That's why it is important for you to understand the terms and conditions of your own bank in advance and offer alternative payment methods if necessary.

What causes return debits?

One of the most common causes for return debits is insufficient funds in the account. When a customer does not have enough money in their account to settle the amount required for a transaction, the bank will decline the payment and a return debit occurs as a result.

Another cause of return debits is incorrect payment details. If a company has entered the wrong account details inadvertently or if the customer has entered a wrong number, this can lead to a return debit.

Finally, missed deadlines are also another common cause of return debits. If a business fails to send payment instructions on time, or if the bank needs more time than expected to process a transaction, this can lead to problems with receiving the amount.

How much does a return debit cost a business in the European Union?

A return debit can be associated with considerable costs for businesses. According to the European Union directive on payment services (PSD2), businesses can pay up to €8 per return debit. This consists of a basic fee of €4 plus costs, which vary depending on the customer's bank. In addition, other costs may also arise depending on the bank. For instance, the business may be liable for losses if it failed to perform the relevant checks properly.

If return debits occur frequently, a bank might completely block SEPA Direct Debits to the business. This would require the business to switch to other payment methods, which may also be associated with additional costs.

Which fees can be passed on to the customer?

If a customer fails to pay an invoice, it may lead to the business passing fees on to the customer. Which fees can be passed on depends on the relevant legal framework. However, as a general rule, a late payment fee will be charged if the customer does not pay the invoice on time. The late payment fee cannot be charged as a fine and can only be as high as the costs incurred in connection with the late payment (e.g. paper and postage stamps). If the customer continuously fails to pay even after several payment reminders, the business may pursue legal action.

In addition, the business is also allowed to levy a processing fee in the case of return debits. However, this may not be higher than the actual costs incurred. This processing fee must always be invoiced to the customer separately and must not be hidden within the invoice amount.

How long does a return debit take to process?

As a general rule, it takes at least five working days for the customer's bank to cancel and post the original payment. In some cases, however, this can take longer depending on the type of account and the bank through which the process is conducted.

What are the potential consequences of return debits?

The consequences can be more severe than you might think. When a payment is reversed, your account doesn't receive the funds, so you might not be able to fulfil your own obligations. In addition, each return debit is also debited from your account. The bank generally requests processing fees for each debit that is returned. If this happens frequently, it can quickly add up.

However, your customer experience can also suffer as a result of return debits. When a customer is not able to settle an invoice – or chooses not to – and this leads to a return debit, it could have a negative impact on your business's reputation. Other customers might think that you are encountering financial difficulties or are unreliable, even if this is not the case. To this end, you should not only bear the immediate consequences of return debits in mind, but also their long-term effects on your business.

What actions can be taken to avoid return debits?

Return debits can result in time-consuming disputes, financial losses and a poor reputation. In addition, return debits can have a negative impact on your credit rating, which can affect your ability to obtain credit and other types of financing. It's important to act quickly and professionally when a return debit occurs.

Firstly, ensure that your customers have all the information they need to make payments on time. This includes providing clear payment information on invoices or websites. In addition, setting up automatic payments can also help ensure that payments are made punctually and correctly. Another option is to introduce checking processes to ensure that all customer data are entered correctly. This can minimise the risk of errors when entering account data.

In addition, you should check your bank account on a regular basis. If you receive an unexpected return debit, you should act immediately and find out why this has happened. In this way, any potential problems can be identified early and customers informed promptly so that the problem can be resolved.

Good accounting and an effective dunning process can also help to prevent return debits. Make sure that your customers pay their invoices on time and that you react quickly to outstanding payments. Good preparation and a proactive approach can help to minimise or even prevent losses.

Businesses should also check whether their payment providers offer particular measures for avoiding return debits. With Chargeback Protection, Stripe offers a special programme to protect you and your business against unforeseen disputes. Stripe Payments helps your business manage and monitor its payments more efficiently. Stripe Radar helps you to check account details and identify errors or other problems, such as fraud, so that these can be remedied quickly or even prevented.