How to reduce the risk of recalls in your recurring revenue business

As a recurring-revenue business operating in Europe, SEPA Direct Debit is a reliable and smooth way to get paid. But it’s not without challenges. Our article SEPA Direct Debit: How to reap the benefits while avoiding the pitfalls explains how automation can help reduce the administrative burden of setting up and managing these payments. Here, we’ll talk about another common headache related to SEPA DD: recalls.

What is a recall in a SEPA DD context?

While in card payments, we talk about chargebacks, the SEPA Direct Debit equivalent is a recall. In short, a SEPA DD recall is a payment reversal initiated by the customer through their bank. Under the SEPA Direct Debit Core scheme, a payer has the right to recall a payment for quite some time after the initial transaction: 

• up to 8 weeks without needing to provide a motivation

• up to 13 months if valid (and documented) grounds exist

Mikaela Allisat, Product Manager at Billogram, describes how this affects your business:

“The recalls are handled bank-to-bank, with funds debited directly from the creditor’s account. If you’re a recurring revenue business, the risk of having payments suddenly recalled puts a real strain on your cash flow predictability. Each recall also burdens your financial department with time-consuming administration.”

Why recalls happen: 4 common causes 

Some tend to frame recalls or chargebacks as mainly a fraud problem. But in practice, the most common cases fall in the “friendly fraud” category, where a legitimate customer disputes a transaction. Here are a few typical causes:

1. Unrecognized transactions, for example due to an unclear company name on the customer’s bank statement, or because the customer forgot they signed up for a subscription. 

2. Dissatisfaction with a product or service, where the customer sees a recall as a quicker solution than contacting your support.

3. Administrative errors, leading to your company accidentally charging the wrong amount, duplicating debits, or failing to register a terminated subscription in time to cancel the charge.

4. Insufficient funds on the payment date, where the bank gives initial credit, but recalls the payment on the customer’s behalf if they fail to top up the account in time.

“Quite often, these disputes come down to poor communication and customer experience, as well as inefficient internal processes. All of which you can improve with relatively simple methods,” Mikaela  Allisat points out.

Beyond the revenue impact, recalls typically bring additional provider fees. And of course, resolving the dispute takes up valuable time and resources for both your financial department and customer support. 

Strategies to proactively prevent recalls, chargebacks, and payment disputes

The best line of defense against recalls? Get proactive. You can remove several common triggers by raising your game in these two crucial areas: 

Clear communication

Make sure your company name on the customer's invoice or bank statement is clear and familiar to prevent unnecessary confusion. And for further transparency, make sure to notify customers (for example via email or text message) ahead of every payment, stating the amount, debit date, and what the payment covers.

Simple self-service

Offer your customers user-friendly ways to manage their subscriptions, switch payment methods, or access invoice information with real-time updates – without having to go through customer service. This increases customer satisfaction, while freeing up support resources to focus on more complex inquiries. Which, in turn, reduces the risk of dissatisfied customers opting to take their battle to the bank. 

“By improving transparency and self-service, you won’t just reduce the risk of SEPA DD recalls. You’ll also see positive effects on critical KPIs in areas like on-time payment, support tickets, and customer retention,” says Mikaela . 

Reading tip: Get inspired by how German greentech start-up Rabot Energy uses smart automation and self-service to reduce chargebacks and boost customer satisfaction.

Minimize the effort for the recalls that still occur

Even with solid prevention strategies in place, you can’t completely eliminate chargebacks or recalls. But you can prevent them from drowning your financial department in manual administration work. The shortest path to success? Leverage the automation features available in today’s modern payment platforms. Below are three quick wins that will have an instant effect on your operational efficiency.

1. Immediate notifications

Instead of having to manually search for the event or wait for a report, you can receive an instant notification as soon as a recall occurs and act immediately. 

2. Automated workflows

Why not let your payment platform do the work for you by taking action directly on the invoice? Mikaela explains:

“This is where we see the biggest impact for companies using our platform. Rather than just alerting you as a creditor that a recall has happened, our system automatically reopens the invoice, creates the correct bookkeeping event, and reactivates the reminder and dunning flow if the payment remains unpaid. As a result, you minimize manual administration and human error, while keeping your accounting up-to-date and accurate.”

3. Transparent reconciliation

Finally, you can let your payment platform handle the financial reconciliation. All costs and fees associated with the recall are collected and clearly displayed, so you have complete insight and can forward the cost to the end customer if needed. This transparency eliminates the risk of misunderstandings and simplifies your reconciliation.

From preventing “friendly fraud” to battling actual fraudsters

What about the risk of fraudulent recalls through false accounts? Learn more about this growing threat, and how to tackle it, in our next article: Preventing fraud in automatic payments – without compromising on customer experience.