Understanding the Direct Debit Guarantee

Getting your customers to pay you by Direct Debit is great for your business because Direct Debits are easy, flexible and reliable.

Direct Debits are good for your customers too, giving them a convenient, no-hassle way to make payments with the added protection of the Direct Debit Guarantee.

Let’s take a look at how the Direct Debit Guarantee protects your customers and the rules your business needs to follow.

What is the Direct Debit Guarantee?

The Direct Debit Guarantee protects consumer transactions against fraudulent or incorrect payments.  Every payment made through the banks and building societies that use the scheme is covered, and businesses taking the payments have to abide by the scheme’s strict rules.

This safety net of the Direct Debit Guarantee gives confidence in making payments this way, and helps you encourage your customers to use this payment method.

To pay by Direct Debit, all your customers need is a UK bank account.  You can find out more about Direct Debit in our guide here.

How does the Direct Debit Guarantee protect your customers?

The Direct Debit Guarantee protects your customers in several ways by:

  • Ensuring customers are properly notified about the payments and any changes to the payment schedule
  • Ensuring their right to a refund
  • Protecting their right to cancel their instruction at any time

Advance notification of Direct Debit payments

The Direct Debit Guarantee gives an assurance that customers should be notified in advance of any payment being taken from their account. For regular fixed payments, this could be one notification detailing the future payment schedule.

One of the great things about taking payments from your customers by Direct Debit is that once set up, you can change how much is paid, when and how often, without it having to be re-authorised. This is a key advantage over standing order payments versus Direct Debit, find out more in our article here.

It’s important to remember that if you are making changes to any of these things, you must notify the payee of any amendments in advance, normally ten working days before the account is debited but a different notice period can be agreed.

This is an important part of the Direct Debit Guarantee that you must follow to prevent any interruption to payments or even being barred from the scheme.

Right to refunds

Customers have the right to a full and immediate refund from their bank or building society if a payment error is made.

In reality only a tiny percentage of payments are refunded under the Direct Debit Guarantee as errors are rare but this part of the guarantee makes transactions safe and provides reassurance to customers.

It’s important to note that refunds are only given for errors such as a payment being taken on the wrong date, or the amount of money taken from the customer’s bank account was incorrect.

It cannot be used to address any contractual disputes your customers may raise.​

Refunds (often known as ‘indemnity claims’) are made by the customer directly from the bank, and you will only be notified after the refund has been awarded. You will be given the reason for the refund and it will be reclaimed automatically by the bank, usually 14 working days later.

While the chance of experiencing payment problems is very low there is a process to challenge indemnity claims that you believe have been made incorrectly.

Read more about indemnity claims in our guide.

Cancel at any time

Customers have the right to cancel a Direct Debit at any time by contacting their bank or building society. They should also notify you if they cancel but this doesn’t always happen.

Customer protection is what makes Direct Debit an attractive payment option but that doesn’t mean it will inconvenience your business. Good customer service should prevent most problems from occurring such as payments being cancelled without warning, or incorrect payments not being picked up in advance.

If you follow the rules of the Direct Debit Guarantee, you should find Direct Debit offers your business as much convenience and peace of mind as it does for your customers.

Monthly Guides

Delivered to your inbox

    Sign up to London & Zurich to receive updates. You can unsubscribe at any point.