If your company is considering taking Direct Debit payments there are a number of direct debit collection rules you need to abide by.
In this guide, we will walk you through the direct debit regulations in the UK, and everything you need to know to get you up and running.
What regulations does my business need to comply with to collect Direct Debit Payments in the UK?
To start collecting Direct Debit payments in the UK, your company needs to adhere to Direct Debit Scheme rules.
How does the Direct Debit scheme work?
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, call us now and we’ll be happy to help.
What is the purpose of Direct Debit Scheme rules?
The purpose 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.
What are the Direct Debit Scheme rules?
There are several direct debit collection rules any business that wants to start collecting direct debit payments needs to comply with. 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.
1. Direct Debit Sponsors
Every service user (e.g. your company) 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 collect Direct Debits and make sure you have the right processes in place to be compliant with the Direct Debit Scheme rules.
2. Bank accounts for Direct Debits
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.
3. Comply with Direct Debit indemnity rules
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. Find out more about Direct Debit Indemnity Claims in our blog article.
4. Direct Debit forms must be approved by the DD sponsor
Before your company is approved by the Direct Debit sponsor, the company will need to submit all the DD forms it intends to use to ensure that the form used to collect DD from their customers (“payers” in DD terms) enables the processing of Direct Debits as well as provides customer with certain information to make an informed choice. The sponsor will then either give their approval or request changes.
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. PaySuite’s Direct Debit Payment Collection service includes approved online DD forms that can be customised and set up in minutes, but if you want to design your own forms, you will need to get them certified in writing in advance from your sponsor bank.
5. You need a SUN number for Direct Debits
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. Access PaySuite uses the SUN to correctly integrate with Bacs. Learn more in our guide to obtaining a Service User Number (SUN).
6. You must use the AUDDIS method
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.
7. Paper DDI forms mean more admin
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. Find out more about how to store paper and paperless DDI forms in compliance with direct debit collection rules in the UK.
Access PaySuite enables businesses to set up new DDIs via phone, online, through file upload or automated by API.
8. You must have a way of logging rejected DDIs
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 can be handled by PaySuite so you get to know your paid, unpaid and cancelled transactions, putting you in control of your company’s cashflow.
9. You’ll need to use ADDACS
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 outdated details or cancelled DD instructions so it is handy that PaySuite also manages your ADDACS reports automatically.
10. Deal with your ARUDDs
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.
Comply with Direct Debit regulations with PaySuite
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 offering Direct Debit Collection Services to a wide range of businesses 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.
Direct Debit rules FAQs
What is a DDI?
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.
What does a Direct Debit Mandate mean?
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.
What is the Direct Debit guarantee?
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.
What is the first step to becoming a Direct Debit user?
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.
Who do I contact about setting up Direct Debits?
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).
What forms do I need to use for Direct Debits?
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.
What does a Direct Debit form need to include?
Every Direct Debit form must include the following items;
- The Direct Debit logo
- The name and address of the service user
- A heading entitled ‘Instruction to your bank or building society to pay by Direct Debit’
- A Service User Number (SUN)
- The full postal address and name of the payer’s bank or building society
- The name of the account holder
- The sort code
- The payer’s bank or building society account number
- The service user’s reference
- An instruction from the payer to debit his or her account including reference to the Direct Debit safeguards under the Direct Debit Guarantee
- Signature of the payer and date of the instruction
What does AUDDIS mean?
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.
How safe are Direct Debits?
Very.
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.
What is an ARUDD?
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.