Understanding the Direct Debit Guarantee

Customer payments by Direct Debit are popular with businesses, because of the ease, flexibility and reliability of the process.

But this transaction method offers significant benefits to customers too, and understanding the Direct Debit guarantee means you can encourage your customers to have confidence in paying you this way.

Applies to all

The first thing to know is that the guarantee applies to every Direct Debit payment that goes through the banks and building societies that use the scheme.

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).

Change notifications

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 for example- find out more in our article here).

However, 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 guarantee and must be followed 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 incredibly 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.

The chance of experiencing payment problems is very low, but there is also a process to challenge indemnity claims that you believe have been made incorrectly.

Cancel whenever

Customers can cancel a Direct Debit at any time by contacting their bank or building society. They should also notify you if they cancel, but this is not always the case.

Customer protection is what makes Direct Debit an attractive payment option, but that doesn’t mean it will inconvenience businesses.

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 your customers.

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