Creating and managing Direct Debit payments
Businesses can offer and handle the admin of Direct Debit payments in different ways, but the following general principles apply.
The customer always needs to consent to the business taking money from their bank account, typically through a Direct Debit instruction (also called Direct Debit Mandate) form the customer completes on paper, online or over the phone. This authorises the merchant to charge the account on a recurring or one-off basis, as long as proper notice has been given regarding payment dates and amounts.
The merchant can submit the following information on the form directly or indirectly to Bacs:
- Payment amount(s)
- Date(s) of charge(s)
- Bank account details
Those with large numbers of daily transactions may find direct submissions cheaper and faster, whereas smaller businesses with fewer payments tend to prefer using a service that submits instructions to Bacs on behalf of the business.
Bacs then sends the details to the customer’s and merchant’s banks who will save the information and schedule the payments to take place accordingly. The payer can cancel their Direct Debit with their bank at any time, and the merchant can also recall the payment instructions as long as their bank and Bacs are notified of it.
The merchant can submit payment instructions up to 30 days before the payment date and must always give proper notice (e.g. 10 working days) before the charge takes place. One-off Direct Debit payments don’t need an advance notice if the payer has authorised the charge.
The first payment submitted for a customer always takes longer – up to 10 working days – while subsequent payments take up to 3 working days to clear in the merchant’s account.
Indirect vs direct submitters
If the business signed up for a Bacs-approved Direct Debit bureau like Worldpay, FastPay or GoCardless, they are indirect submitters. This is what most small businesses choose to do, simply because the setup is simpler and integrates with accounting and useful automation tools.
For example, many payment providers automatically send advance emails to customers about upcoming Direct Debits, so the merchant doesn’t have to deal with this at all. If the software integrates with the company’s accounting system and business account, that also simplifies bookkeeping.
Lastly, some payment solutions make it very easy for customers to enter their bank details and authorise payments online (instead of through a traditional Direct Debit Mandate). This can make more customers sign up promptly, helping the merchants to get paid sooner.
Direct submitters, on the other hand, manage and submit instructions directly through the Bacstel-IP software. This is a more complicated setup requiring users to either access Bacs-approved software for Bacstel-IP or to use a website called “Bacs payment services”.