Understanding Direct Debit Indemnity Claims

Direct Debit is one of the safest and most reliable ways for businesses to take payments from customers and has an incredibly low error rate.

But if a payment is taken in error, under the Direct Debit Guarantee, your Direct Debit customers are able to raise an Indemnity Claim to reclaim a payment if it has been taken wrongly or without permission.

As a business, if you are issued with an indemnity claim, it’s important that you understand what they are and what you will need to do.

What is a Direct Debit Indemnity Claim?

A direct debit indemnity claim is a claim made by the paying bank in respect of an incorrect Direct Debit collection applied to a customers account.

The Direct Debit Indemnity Claim process

  • The request : If your customer believes a payment error has been made, they will go to their bank and request a refund under the Direct Debit Guarantee. The Direct Debit Guarantee is a fail-safe that makes this type of payment appealing for customers, knowing they can claim their money back if a payment error occurs.
  • Validation and refund : If the bank validates the request under the reasons set out in the scheme, they will issue a full and immediate refund.
  • Raising of indemnity claim : The bank will raise an indemnity claim and inform you through their usual reporting process. You then have nine days to challenge the indemnity claim by providing relevant evidence.
  • Disputing : If you are not disputing the indemnity claim, or if your challenge is not successful, the bank will automatically take the relevant payment from your account.

Should you issue the refund yourself?

If you decide to directly refund your customers for a Direct Debit payment made in error, you run the risk of the money being refunded twice, as they may also go to their bank to raise the indemnity claim.

You could consider raising the indemnity claim with the bank on your customer’s behalf to avoid this, which will also demonstrate good customer service.

Are you still owed money?

The indemnity claim only challenges the Direct Debit transaction. If goods or services have been received and not paid for, you will still have a valid contract and therefore the payer will still owe you money.

Similarly, if one payment has been challenged and an indemnity claim issued, the customer may not have cancelled their recurring Direct Debit. If they haven’t, you can continue to take payments if you contact the customer and they agree.

Will I regularly get indemnity claims?

If you run your Direct Debit scheme effectively and in line with the rules, you shouldn’t receive indemnity claims. However, if you notice you have started receiving more indemnity claims than before, check what the reason codes are, and review how your Direct Debit process is being run.

If you are interested in seeing how London & Zurich can help with your regular payments, get in touch.

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