If you are considering taking payment from your customers by Direct Debit then there are a number of rules you need to abide by.
In this guide, we are looking through a few of these, both for before you start and when you are up and running. We’ve also added on some useful FAQs at the end.
The Direct Debit (DD) scheme is operated by the Bacs network and companies (called “service users” in DD speak) access the system using specialist software or by using a Bacs bureau such as Access PaySuite.
This highly secure method of payment is quick, cheap, efficient and thanks to the regulations around DDs, very secure.
If you’d like to talk to someone about the rules and your options for accepting Direct Debit payments then call us now and we’ll be happy to help.
The point of the Direct Debit scheme rules can be summed up in one word - security.
The Bacs network is highly secure and users can’t be allowed to connect at will.
At the same time, where money is concerned there is always someone looking to take advantage of customers and so the requirement for a sponsor is a way to ensure that service users are genuine businesses that can be trusted.
Consequently, a set of defined and clear rules have been developed to protect the integrity of the Bacs network and the bank accounts of customers.
Before you even begin to receive payment by Direct Debit there are a number of things that you need to do.
These rules are aimed at making sure service users are setting off in a compliant manner and that they will access the network correctly and treat their customers fairly.
Every service user needs to have a sponsor before they enter the Direct Debit scheme. This is usually their own bank. They will ensure that your business is suitable to use Direct Debits and make sure you have the right things in place to be compliant with the rules.
The Service User has to have a UK-based bank account. It can be an overseas company, but it must collect the payments in sterling to an account with a UK bank.
Before a company starts using the Direct Debit scheme, they have to sign an indemnity with their sponsor. This is a legal document that states that they will make good any losses the sponsor incurs due to the actions of the service user.
Before they are approved by the sponsor, the company will need to submit all the forms it intends to use. The sponsor will then either give their approval or request changes.
A SUN (Service User Number) is a vital cog in the machine. It is the way that Bacs identifies who is originating Direct Debits and to whom the money should be paid.
Your SUN will be issued by your sponsor once you have been accepted and PaySuite needs this to correctly integrate with Bacs. Learn more in our guide to obtaining a Service User Number (SUN).
All new service users that submit DDIs to BACS have to use the Automated Direct Debit Instruction Service (or AUDDIS for short). Learn more about what is AUDDIS and what advantages it has.
Service users need to collect information from their customers (“payers” in DD terms) to enable the processing of Direct Debits but by the same token, they must provide certain information back to allow the customer to make an informed choice.
Standardised forms are used to make sure that the correct information is gathered and formatted correctly ready for onward transmission into the network.
There are also rules about wording designed to inform customers so that they have a clear understanding of the authority they are giving the service user.
There is a standard format for the Direct Debit Mandate or “Instruction” from the customer. This has been designed to make it easy for the payer to complete and to ensure that all the details necessary to set up the Direct Debit Instruction (DDI) are obtained.
The form can be in paper format but is much more likely to be electronic and embedded into a merchant’s website.
PaySuite includes approved online DD forms that can be customised and set up in minutes, but if you want to design your own forms then you will need to get them certified in writing in advance from your sponsor bank.
The service user is responsible for all of the administration of Direct Debits. This means that once the completed DDI has been returned by the payer, you must make sure that all information is recorded accurately before transmitting it to the network.
Access PaySuite enables businesses to set up new DDIs via phone, online, through file upload or automated by API.
Upon receipt, the payer’s bank will either accept or reject the DDI. If rejected, the DDI is returned to you and you’ll need to amend your records.
Again, this is handled by PaySuite so you get to know your paids, unpaids and cancellations.
ADDACS or Automated Direct Debit Amendment and Cancellation Service is an electronic method of informing the service user of any changes in bank account details or cancellations.
Bacs get very disappointed if you continue to send throughout of date details and canceled instructions so it is handy that PaySuite also manages your ADDACS reports automatically.
An Automated Reason for Unpaid Direct Debit or ARUDD code will tell you why a customer has failed to pay.
Now, this isn’t strictly speaking a DD rule, but it is important to make sure that it isn’t part of a wider trend that may lead to you breaking the rules.
For example, if you are suddenly getting a lot of cancellation ARUDDs it may mean that customers are not being given clear information about the cost or timing of your Direct Debits somewhere up the line.
A Direct Debit Instruction or DDI for short is the initial agreement from the customer to allow you to make a charge on their account.
A Direct Debit Mandate(DDM) is often used as another name for a DDI although originally it related to the physical form that a customer would complete. It includes details such as bank account and sort codes and the service user’s SUN number.
The Direct Debit guarantee is a method of protecting the customer should there be an error or fraud in the collection of a DD.
If the wrong amount is taken funds are accessed on a wrong day or a customer isn’t advised of changes to payment amounts they will be refunded by their bank and the service user will be charged.
The first step is to contact your bank and begin the process of applying for a DD sponsor. In the meantime, contact us and we’ll talk you through what you’ll need to operate Direct Debits swiftly and easily.
In the first instance, you need to contact your business bank who will be able to advise you on getting your Service User Number (SUN).
You’ll need to use fairly standard forms for your Direct Debits transactions and these will have to be approved by your sponsor bank in advance.
You can use either paper or electronic forms and many sponsors are able to supply acceptable templates and of course, the PaySuite solution includes these as standard.
Every Direct Debit form must include the following items;
The Automated Direct Debit Instruction Service is the method that users submit new instructions to the BACS network. This is done using software of which PaySuite is an awesome example.
Only registered and vetted service users can originate Direct Debits and the BACS network (which can only be accessed using a highly secure and approved service like PaySuite) is one of the most secure in the world.
An Automated Reason for Unpaid Direct Debit or AURUDD is an electronic message that is sent by BACS if a payment fails.
The code gives you an indication of why the customer has failed to pay which then allows you to deal with any issues they may be having.
With PaySuite these are shown on reports that allow you to see exactly where you are at the click of a button.
You may feel a little overwhelmed on first reading, but most of this is common sense and with Bacs bureaus like PaySuite, most of the compliance is taken care of.
At PaySuite, we have over 20 years of experience in Direct Debits and specialize in making sure that our customers are compliant with the minimum of fuss.
If you still have questions, then speak to one of our experts and we’ll set your mind at rest.
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