Have you ever had a SEPA Direct Debit rejected and wondered why? Perhaps you’ve had to pay fees for a failed Direct Debit. In this article, you’ll learn why SEPA Direct Debit payments may be rejected, as well as the right way to respond and who is liable for the fees. We’ll explain the reason codes for rejected SEPA Direct Debits and provide tips on how to avoid Direct Debit returns.

What’s in this article?

• Why might a SEPA Direct Debit payment be rejected?
  
• How should businesses approach charges for a failed Direct Debit?
  
• Who pays the fees for a Direct Debit return?
  
• How to respond to insufficient funds
  
• Reason codes for rejected SEPA Direct Debits
  

Why might a SEPA Direct Debit payment be rejected?

SEPA Direct Debits are a fast, secure, and efficient payment method used in the Single Euro Payments Area. In 2022, the total revenue from Direct Debits in cashless payment transactions in the euro was over €4 trillion. With SEPA, customers in Europe can make payments by Direct Debit without having to worry about compatibility issues or currency conversions. Despite this, it is possible that SEPA Direct Debits could be rejected and your business doesn’t receive your money initially.

One of the most common reasons why a SEPA Direct Debit is rejected is insufficient funds in the customer’s account. If there are insufficient funds for the SEPA Direct Debit, the recipient will not receive payment and a Direct Debit return will be received. Another reason is insufficient or incomplete data being entered when the Direct Debit mandate is created. In such cases, it is likely that the bank will not execute the payment order.

Technical problems may also arise on the part of the recipient or the banking system during the processing of the order itself; these should be solved immediately by the respective bank’s customer service team.

In general, there are several reasons why SEPA Direct Debits may be rejected. However, it is typically the customer’s responsibility to do everything they can to ensure that the transaction is successful—in particular, checking their account before placing the order and providing all the required information.

How should businesses approach charges for a failed Direct Debit?

SEPA Direct Debits are a payment method in which the creditor (the business) collects the amount to be paid from the debtor’s account. In the event of a failed collection, businesses may charge fees to cover their incurred expenses.

However, there are some legal restrictions on this. According to SEPA Regulation, the fee amount may only correspond to the actual costs incurred and must be communicated transparently in advance. Accordingly, a flat fee without any reference to the actual cost amount is not permitted.

In order to avoid unnecessary incorrect bookings, businesses should make sure that they receive all the required information from their customers and that the data is correct. Regularly reviewing account information can also help avoid problems.

Overall, SEPA Direct Debits are a convenient and secure payment option for businesses and customers. If potential issues are handled appropriately and communication is transparent, any fees can also be handled fairly. Find out more about how you can accept SEPA Direct Debits quickly and easily with Stripe.

Who pays the fees for a Direct Debit return?

One of the most common questions related to SEPA Direct Debits is about the fees for Direct Debit returns when a payment could not be processed. As a general rule, the customer covers the costs of Direct Debit returns for SEPA payments. However, the costs will differ depending on the country and the banking institution. Credit institutions may also pass these costs on to customers or treat them as part of their overall fee structure. Payment service providers (PSPs), on the other hand, usually encapsulate these fees and pass them to the businesses.

It is important for customers to read each institution’s terms of service carefully to determine what specific fees apply for Direct Debit returns. There are also certain cases in which a customer does not have to pay a fee for a Direct Debit return—for example, if the recipient filled out the Direct Debit incorrectly or the amount was incorrect. Rechecking the account details and amount when entering can avoid these interruptions in the payment process.

How to respond to insufficient funds

SEPA Direct Debit allows both businesses and customers to easily transfer money. But what happens when the customer’s credit transfer is unsuccessful? In these cases, the credit institution from which the Direct Debit was collected will receive a Direct Debit return. The code for this is AM04, or “insufficient funds.” The business must then be reimbursed the amount. A business should act immediately and respond quickly in this situation.

It is advisable to contact the customer immediately and inform them that their payment has not been collected. Once the customer’s account balance has been verified, the customer may be asked to make up the missing balance. It is also important to provide the customer with information on the schedule for reimbursement of the amount.

An effective reminder system can help to quickly identify overdue payments and take appropriate action. This could involve sending payment orders or reminder fees to customers.

If you want to easily accept and manage payments, learn more about Stripe Payments. Payments also helps you convert more global customers by giving you access to over 100 payment methods and an accelerated checkout. This creates a seamless customer experience and quickens your expansion into new markets.

Reason codes for rejected SEPA Direct Debits

A failed Direct Debit can cause several issues, which is why it is important that you understand the different reason codes for rejected Direct Debits.

The most common reason codes are AC01, AC02, AC03, AC04, AC05, AC06, and AM04. The first useful code to understand is reason code AC01, which means that the International Bank Account Number (IBAN) provided was incorrect. AC02 indicates that the customer’s credit institution is not authorized to process the Direct Debit. The customer therefore needs to use a different bank account or payment method. The next code is AC03, which indicates that the creditor’s account number is invalid or has not been provided. Reason code AC04 means that the account has been closed, while AC05 means that the customer’s account is blocked. Another useful code is AC06. This code usually means that the customer has canceled the transaction or the amount is wrong, in which case they either need to pay the correct amount or cancel the transaction and try again. AM04 is a very common reason code—it indicates that there are insufficient funds in the debtor’s bank account and the payment therefore cannot be made. In such a case, the customer will need to move money into their bank account or use another payment method. Typically, due to data protection regulations, AM04 is converted to reason code MS03, “reason not specified.”

It is important to note that each credit institution has different policies regarding reason codes and what steps need to be taken to resolve issues with rejected SEPA Direct Debits. It is therefore strongly recommended that you contact the respective credit institution directly to obtain further information about the reason code and the necessary procedure for rejected Direct Debits. You can find more information on Direct Debit returns in our FAQs on Direct Debit returns.

The most important reason codes at a glance

• AC01 (IncorrectAccountNumber): The IBAN is incorrect.
  
• AC02 (InvalidDebtorAccountNumber): The debtor’s account number is invalid or missing.
  
• AC03 (InvalidCreditorAccountNumber): The creditor’s account number is invalid or missing.
  
• AC04 (ClosedAccountNumber): The account is closed.
  
• AC05 (ClosedDebtorAccountNumber): The debtor’s account is closed.
  
• AC06 (BlockedAccount): The account is blocked.
  
• AG01 (TransactionForbidden): The payment type is not allowed for this account.
  
• AG02 (InvalidBankOperationCode): The transaction code or file format is invalid.
  
• AM01 (ZeroAmount): The amount is zero.
  
• AM02 (NotAllowedAmount): The amount is not allowed.
  
• AM03 (NotAllowedCurrency): The currency is not allowed.
  
• AM04* (InsufficientFunds): Return due to insufficient funds.
  
• AM05 (Duplication): Duplicate collection.
  
• AM06 (TooLowAmount): The amount is too low.
  
• AM07 (BlockedAmount): The amount has been blocked.
  
• AM09 (WrongAmount): The amount is incorrect.
  
• AM10 (InvalidControlSum): The sum of the individual amounts is not equal to the checksum.
  
• BE01 (InconsistentWithEndCustomer): The end customer’s identifier does not match the corresponding account number.
  
• BE04 (MissingCreditorAddress): The address information is incomplete.
  
• BE05 (UnrecognisedInitiatingParty): Unknown sender.
  
• BE06 (UnknownEndCustomer): Unknown customer or payee.
  
• BE07 (MissingDebtorAddress): The payer’s address is missing or incomplete.
  
• DT01 (InvalidDate): Invalid date, e.g., incorrect billing date.
  
• ED01 (CorrespondentBankNotPossible): Incorrect credit institution information.
  
• ED03 (BalanceInfoRequested): Additional information on balances is requested.
  
• ED05 (SettlementFailed): Settlement of the transaction failed.
  
• FOCR (FollowingCancellationRequest): Return due to recall or request.
  
• MD01 (NoMandate): No valid mandate.
  
• MD02 (MissingMandatoryInformationInMandate): Mandate data is missing or incorrect.
  
• MD03 (InvalidFileFormatForOtherReasonThanGroupingIndicator): Invalid file format.
  
• MD04 (InvalidFileFormatForGroupingIndicator): Invalid file format for the grouping indicator.
  
• MD05 (CollectionNotDue): The Direct Debit should not have been collected.
  
• MD06 (RefundRequestByEndCustomer): Objection by payer.
  
• MD07* (EndCustomerDeceased): Account holder is deceased.
  
• MS02 (NotSpecifiedReasonCustomerGenerated): Direct Debit account is blocked by payer.
  
• MS03 (NotSpecifiedReasonAgentGenerated): Reason not specified.
  
• NARR (Narrative): The reason is provided as long text in the additional information.
  
• RC01 (BankIdentifierIncorrect): Invalid Bank Identifier Code (BIC).
  
• RF01 (NotUniqueTransactionReference): The transaction reference in the message is not unique.
  
• RR01, RR02, RR03, RR04* (RegulatoryReasons): Regulatory reasons.
  
• SL01 (SpecificServiceOfferedByDebtorBank): Specific service provided by the payer’s bank.
  
• TM01 (CutOffTime): The cutoff time has been exceeded.
  

Due to data protection regulations, the reason codes marked with an asterisk ( * ) are converted to reason code MS03 during outbound processing. Learn more through the European Payments Council's overview of reason codes.