Direct Debits are a superb way to keep control of the money coming into your business, and also enable you to gain total transparency over cash flow. Unfortunately they can also be a bit of a minefield - the rules are complex, the unknowns are frustrating and the admin is often a nightmare.
Below is a selection of the most frequently encountered Direct Debit dilemmas and their solutions:
I want to offer Direct
Debit as a payment method to my customers. Where do I
start?
Your first port of call should be your bank, or 'sponsoring bank' (the bank
sponsoring your application). When looking at the application, they
will take into account several factors, such as the financial
stability of your company, the quality of processes in place and
the length of time the business has been running.
Successful acceptance onto the Direct Debit Scheme can take up to 6 months, depending on the auditability of the company in question and the degree to which all the paperwork is completed.
What is
AUDDIS?
Read our section on 'What is AUDDIS'
What's the benefit of using
AUDDIS?
Essentially, AUDDIS reduces administration for everyone involved
in the DD process; banks and Service Users benefit from less paper
handling, and customers enjoy a better service through fewer manual
re-keying errors. Service Users simply send DDIs electronically,
via Bacstel-IP, to the customer's bank.
Aren't there security and
fraud risks involved with doing everything
electronically?
Although there's no physical signing involved in the AUDDIS
process, Service Users verify customers' details via credit checks,
cross referencing with the electoral register or their own
historical customer records. Additionally, a requirement of
becoming AUDDIS compliant is to satisfy the sponsoring bank with a
list of the checks the Service User plans to adopt.
If a fraudulent payment is
made, who is responsible?
The Service User. According to the Direct Debit Guarantee, the
paying bank must refund the customer immediately, and then reclaim
the money from the Service User by making an Indemnity Claim.
An Indemnity Claim… What is
that?
An Indemnity Claim is essentially a refund claimed by a customer
who has been debited wrongly - for example, if a Direct Debit was
paid for too high an amount.
The Direct Debit Guarantee entitles the customer to obtain an immediate refund from their bank for any wrongly claimed Direct Debit. Subsequently, the bank then claims their money back from the Service User.
Automation of Direct Debit Indemnity Claims is currently being planned and will be implemented by Bacs in October 2010. You can read more about DDICA here.
How can the account numbers
and sort codes that customers provide be verified?
Service Users are required to perform modulus checking on all of
the bank accounts and sort codes they collect against. The
consequences involve failed payments, bank charges and frustrated
customers. All of Albany's Direct Debit management tools include
this functionality as standard.
What happens if a bank
requests to see a copy of a signed Direct Debit
Instruction?
The Service User must provide a copy within 7 days. Generally this
is to satisfy disputes between customers and Service Users
revolving around signing issues. Faxes, photocopies and image
copies are all acceptable, as long as the signature is clearly
visible.
How long should DDIs be
stored by Service Users?
There is no limit, so this is really a business decision and will
differ between Service Users. They must bear in mind, however, that
failure to produce a DDI upon request will result in a full refund
having to be made.
I've heard about Paperless
Direct Debits… What are these?
This is another service available to Service Users using AUDDIS.
It enables the setting-up of Direct Debits over the phone or by the
internet, without signing a paper mandate.
How can a DDI be set up via
telephone or the internet?
The Service User will ask the customer authorising the DDI to
supply personal details such as their bank account, sort code and
account name using an approved script. If the DDI is being set up
on the internet, it must be done using the Service User's website.
These details are then verified and the DDI is lodged with the
paying bank via AUDDIS. Prior to use, all telephone scripts and
internet screens are approved by the Service User's bank.
Does the customer receive
any confirmation, given that the system is
paperless?
Service Users must send a written confirmation of the DDI to the
customer within 3 days of it being set up. Alternatively, this
communication must be received 10 days prior to the first
collection being made.
If a customer does not
recall authorising a Direct Debit payment, what action should be
taken?
Firstly, the Service User should send a copy of the DDI to the
paying bank. While this is being verified, the customer is entitled
to a full refund under the terms of the Direct Debit Guarantee. If
the Service User is unable to supply a copy of the DDI within 7
working days, they must refund the bank in full. The Service User
is then required to take up the dispute with the customer.
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