Daily newspaper Libération reported that green teddy bears were placed against the names of children whose contributions had been paid and red bears for those that hadn't.
"I found out about it from my children," said one parent, Christophe Mauvillain. "Some of the little ones started crying in the school playground because they thought they wouldn't be able to go and eat."
The mayor of Ruffec, Bernard Charbonneau, told the newspaper the whole affair was "a lot of noise about nothing."
The system was "only for internal use" he said. "We didn't do it to discriminate or stigmatize the children."
The mayor said the system was required as the amount of unpaid lunch contributions had reached €56,000 ($75,000) and a series of letters to recoup the money had not worked.
It's likely that comments reported in local newspaper Charente Libre at the weekend did little to help the situation.
"Family welfare benefits are there for paying the school canteen," he said. "Not for flat screen TVs, cigarettes or having a Ricard [alcoholic drink] in the bar."
After the controversy, Libération reported that all the teddy bear stickers were green on Tuesday, even for those who still hadn't settled their debts.
The president of the local parents association, José Dupuis, said the action was a "mistake."
"I'm sorry that the mayor didn't warn us before he put this system in place," he said.
Despite the removal of the offending teddy bears, the mayor was still taking a hard line on Tuesday, according to Charente Libre.
"When you take out a contract with SFR [mobile phone company] you pay your subscription before making a call," he said. "When you do your shopping in the supermarket you pay before eating."