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Understanding 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.

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. (Read our informative guide on Direct Guarantees here).

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

What will happen?

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.

If the bank validates the request under the reasons set out in the scheme, they will issue a full and immediate refund.

The bank will raise an indemnity claim and inform you through their usual reporting process. You then have nine days to challenge the claim by providing relevant evidence.

If you are not disputing the 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 directly refund your customers for a Direct Debit payment made in error, you run the risk of the money being refunded twice, if they also go to their bank. You could consider raising the indemnity 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.

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