Failed Collections (the unpaid cycle)
The processing of a Direct Debit Collection should be handled in the correct timeframe and in a complaint fashion by all parties involved. If, for whatever reason, the collection attempt fails at any stage, the process of exception handling begins.
For example: If a Creditor is collecting from a Debtor for the first time, but when submitting the file for collection it’s sent as a recurring payment, this will be regarded as an error and the collection of that Direct Debit will fail.
This type of error could easily occur due to a management software fault, misinterpretation of the rules or even human error. Upon receipt of the file containing the error, the participating Bank would flag as an exception and reject the transaction with the appropriate ‘R-Message’ (reason for the return).
Direct Debit Transactions that result in R-Messages are referred to as ‘R-transactions’. Both are one in the same, as your R-transactions contain your R-Messages. All parties involved in the Direct Debit Process are obliged to act on such messages when received. In most cases, this would be summarised in a daily report from the Creditor Bank to the Creditor. Each R-Message has an appropriate action for the relevant party to take
When is a Creditor notified of a ‘failed’ collection? (R-messages)
- By Debtor Bank no later than 2 BBD* after settlement
- Prior to Settlement – By Debtor Bank on Due Date prior to Settlement i.e. on the collection date, but before payment has been taken from the Debtor
- After Settlement – By Debtor Bank on the day the collection failed (typically Due Date or up to 5 BBD* after collection)
B2B Scheme ‘Returns’ take place on the day of failure or no later than 2 BBD* after collection.
*BBD (Business Banking Days). For further explanation click Mandate Amendment
If a delay occurs, and a collection instruction is not received by the Debtor bank in the time required by the rules, then the the Creditor or Creditor Bank must replace the Due Date with the earliest new date.
If Due Date falls on a different day to a Business Banking Day then settlement Date will be the next available Business Banking Day i.e. if Due Date is not a typical working day for that Debtor bank such as it’s a bank holiday in that country, then settlement would occur on the next available Business Banking Day.
If collection cannot be executed, and there can be many reasons for this including there being insufficient funds on the Debtor’s account, or that it’s the transaction has been cancelled, the appropriate R-Message should be created by the Debtor bank per the SEPA Direct Debit scheme rules.
Note: Non-standard timing does effect the remainder of the process, for example, pushing settlement or R-messages out by a day.