How does collecting via Direct Debit work?

Taking payments through Direct Debit offers many benefits to businesses.

Here we look at exactly how the process works both for you and your customers, and what happens behind the scenes.

First things first

When you have decided that you want to implement this type of payment system, you’ll first need to contact your bank. They’ll run some checks to make sure you can meet the criteria needed to take payments by Direct Debit. You’ll also be provided with the rules of the scheme and any other information.

The scheme offers the Direct Debit Guarantee to customers which is strictly enforced, so your bank will need to be assured you can abide by these rules.

You or who?

You’ll need to decide if you’re going take payments directly or use a ‘middle man’.

You can set up a Direct Debit payment system yourself by applying for and setting up a merchant account – known as a ‘Service User Number’ or SUN- through your bank. You’ll also need to buy approved software to make sure security and data standards are met.

In reality, this is usually only possible for large and well-established companies. Alternatively, you can use a Direct Debit ‘bureau’ that will take Direct Debit payments on your behalf for a commission. This may involve them setting up a SUN for your business, or using their own SUN.

There are also lots of different types of software that manage Direct Debit payments, and many will integrate with your other financial systems, which is a clear benefit.

Getting sign ups

Customers can sign up to pay you by Direct Debit by completing a mandate with their bank account details. You can offer this through paper forms or electronically, or a combination of both.

This gives you authorisation to take payments from a customer’s bank account. Payments can be made between any UK bank accounts, but you will need to notify your customers of any changes to the amount, frequency or date of payments in advance.

 Behind the scenes

Direct Debit is a form of Bacs payment.

When payments are taken by Direct Debit, the data is sent to Bacs where it is sorted and allocated to the relevant bank or building society accounts– simultaneously taking it from the customer’s account and issuing it to your receiving account.

It’s a three day cycle where:

  • You or your processor sends payment files to Bacs on day 1 between 7am and 10.30pm, to begin the processing cycle.
  • Files are sent to the receiving bank on day 2 to process each payment.
  • Payments are taken from your customer’s account and credited to your account at the same time on day 3.

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