Foreword'
3
What'is'Direct'Debit?' Direct'Debit'is'pull'based' Direct'Debit'payments'are'bank4to4bank'
5 5 6
Use'cases'for'Direct'Debit' Direct'Debit'is'great'for…' Paperless'Direct'Debit'is'even'better'for…' Direct'Debit'isn’t'so'good'for…' Direct'Debit'payments'through'GoCardless'
7 7 8 8 8
Getting'access'to'Direct'Debit' Direct'Access' Submitting'indirectly' Direct'Debit'bureaus' Online'Direct'Debit'with'GoCardless'
9 10 10 11 11
Direct'Debit'Mandates' What'is'a'Direct'Debit'Instruction?' Completing'a'Direct'Debit'Instruction'form' Paper'Direct'Debits' Paperless'Direct'Debits' Submitting'a'completed'DDI'form'to'the'banks' Managing'your'Direct'Debit'mandates' Direct'Debit'mandates'through'GoCardless'
13 13 14 14 14 15 15 15
Taking'payments'by'Direct'Debit' Notifying'your'customer'of'payments' Submitting'payment'requests'to'the'banks' Post'submission' Chargebacks' Taking'Direct'Debit'payments'through'GoCardless'
17 17 18 18 18 19
The'Direct'Debit'Guarantee' Customer'protection' The'refund'process' Dispute'resolution'
21 21 22 22 1
The'Guarantee'in'practice' The'Direct'Debit'Guarantee'in'action'at'GoCardless'
23 23
Direct'Debit'Timings' Advance'notice' Timings'after'payment'submission' The'Bacs'three'day'cycle' Collecting'payment'against'an'existing'DDI' Creating'payment'when'no'mandate'exists' Non4working'days'and'optimising'timings' Payment'timings'with'GoCardless'
25 25 26 26 27 28 28 28
Submitting'messages'to'the'banks' The'submission'process' Submitting'Direct'Debit'Instructions' Submitting'Direct'Debit'payments' Submitting'to'Bacs'through'GoCardless'
31 31 32 33 33
Receiving'messages'from'the'banks' Receiving'messages'from'Bacs' Direct'Debit'Instruction'notiVications' AUDDIS'messages' ADDACS'messages' Payment'request'notiVications' ARUDD'messages' DDICA'messages'
35 35 36 36 39 40 40 42
What'is'SEPA'Direct'Debit?' SEPA'DD'allows'collection'from'any'Euro'account' SEPA'will'replace'national'Direct'Debit'schemes' Key'differences'to'UK'Direct'Debit' Accessing'SEPA'through'GoCardless'
45 45 46 46 47
Glossary'
49
The'text'in'this'publication'is'©'2013'GoCardless'unless'otherwise'stated.' First'edition,'May'2013.'Set'in'Cambria'and'Motiva'Sans.'Visit'us'at'gocardless.com 2
Foreword Direct'Debit'is'the'UK's'preferred'way'to'take'regular'payments,'with' over'£1'trillion'collected'each'year.'It'is'the'only'payment'scheme'that' allows'merchants'to'pull'payment'directly'from'their'customers''bank' accounts. At'GoCardless,'we'help'more'businesses'collect'by'Direct'Debit'than'any' other'UK'provider.'This'guide'is'the'product'of'our'experiences' working'with'Direct'Debit,'and'includes: • The'features'of'Direct'Debit'from'a'merchant’s'perspective,'so'you' can'decide'if'it’s'right'for'your'business • Getting'access'to'Direct'Debit'so'you'can'fully'understand'the' different'options'for'collecting'by'Direct'Debit • Implementation'details'you'can'use'to'optimise'your'Direct'Debit' collection'process This'guide'was'written'for'anyone'who'collects'by'Direct'Debit'or'is' thinking'of'using'the'scheme.'However'you'choose'to'access'Direct' Debit,'we'hope'it'will'help'you'get'the'most'out'of'it. The$GoCardless$team gocardless.com
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4
What is Direct Debit? Direct'Debit'is'an'automated'payment'method'that'allows'merchants'to' pull'payment'directly'from'their'customers''bank'accounts.'The'system' has'two'key'features,'from'which'almost'everything'else'follows: 1.
Direct'Debit'is'pull'based'4'once'given'a'mandate'by'their' customer,'it'is'the'merchant'who'initiates'Direct'Debit'payments.' The'customer'doesn't'need'to'lift'a'Vinger.
2.
Direct'Debit'payments'are'bankMtoMbank'4'there'are'no'card' networks'involved'in'the'Direct'Debit'scheme.'All'communications' happen'directly'between'the'banks.
Direct Debit is pull based With'Direct'Debit,'it'is'the'merchant'who'initiates'payment'collection.' This'"pull'based"'nature'has'considerable'beneVits: • Cash'Olow.'Direct'Debit'puts'the'merchant'in'control'of'when'they'are' paid,'and'can'reduce'the'number'of'late'payments'they'receive.
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• Automation.'The'entire'collection'process'can'be'automated,' reducing'admin'for'both'the'merchant'and'their'customer. • Flexibility.'Unlike'standing'orders,'Direct'Debit'allows'the'payment' amount'and'frequency'to'be'varied,'keeping'the'merchant'in'control. The'pull'based'nature'of'Direct'Debit'also'necessitates'strong'customer' protection.'This'is'provided'by'the'Direct'Debit'Guarantee.
Direct Debit payments are bank-to-bank Direct'Debit'operates'through'the'Bacs'clearing'scheme,'rather'than' through'the'card'networks.'This'has'signiVicant'beneVits'when'taking' payments'on'an'ongoing'basis: • Low'cost.'Since'Direct'Debit'payments'are'not'routed'through'the' UK's'expensive'card'networks,'they'are'extremely'cheap. • High'retention.'Churn'due'to'card'expiry'is'completely'eliminated,' so'Direct'Debit'relationships'last'longer'than'ongoing'card'payments. • Anyone'can'pay.'Anyone'with'a'UK'bank'account'can'pay'by'Direct' Debit,'including'any'UK'business. Using'the'UK's'bank4to4bank'infrastructure,'rather'than'the'card' networks,'also'has'a'disadvantage:'Direct'Debit'payments'are'not' instant.'For'more'information,'see'Timings'(p.'23).
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Use cases for Direct Debit The'pull4based'nature'of'Direct'Debit'makes'it'particularly'suited'to' some'payments.'Its'timings'and'strong'customer'guarantee'make'it'less' suited'for'others. For'example,'Direct'Debit'is'great'for'recurring'payments,'whether' Vixed'or'variable,'and'for'any'payment'where'instant'clearing'isn't' required.
Direct Debit is great for… • Regular'payments'such'as'subscriptions'(Vixed'or'variable).'Direct' Debit'retention'rates'are'exceptionally'high,'as'churn'due'to'card' expiry'is'completely'eliminated.'Gyms'and'web'hosting'companies' are'great'examples. • Invoicing'for'services'where'payment'terms'make'instant'clearing' unnecessary.'Accountants'and'marketing'agencies'are'good' examples.
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• Account'customers'who'have'an'ongoing'relationship'with'the' merchant.'Direct'Debit'allows'these'customers'to'simplify'the'way' they'pay.'Wholesalers'are'a'good'example.
Paperless Direct Debit is even better for… • Providing'a'faster'service.'Mandates'created'online'or'over'the' phone'are'faster'to'process'than'paper'mandates,'so'customers'can' be'billed'within'3'days'of'signing'up. • Online'businesses'who'need'to'collect'payment'details'through'their' website'when'their'customers'sign'up. • Telesales'teams'who'need'to'set'up'payments'over'the'phone,'such' as'charity'fundraising'teams.
Direct Debit isn’t so good for… • EMcommerce'or'other'transactions'which'need'immediate'clearing.' Direct'Debit'payments'are'not'instant'4'see'Timings'(p.'23). • Liquid'assets'and'high'value'goods,'such'as'cars'or'currency.'The' Direct'Debit'Guarantee'could'make'these'a'target'for'fraudsters. • Transactions'likely'to'see'chargebacks.'The'Direct'Debit' Guarantee'makes'chargebacks'very'easy,'although'fraudulently' charging'back'a'payment'is'still'a'criminal'offence.
Direct Debit payments through GoCardless GoCardless'simpliVies'online'Direct'Debit'to'make'it'even'better'for: • Invoicing:'GoCardless'has'partnerships'with'Sage,'Xero,'FreeAgent' and'KashFlow'to'reconcile'your'Direct'Debit'payments'automatically. • Online'businesses:'GoCardless'has'a'simple'API'that'can'be' integrated'with'your'website. • Everyone'else:'GoCardless's'simple'online'interface'removes'all' barriers'to'taking'payment'by'Direct'Debit.
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Getting access to Direct Debit There'are'three'options'for'accessing'the'Direct'Debit'Scheme.'Which' you'choose'depends'on'your'requirements'and'the'size'of'your' business. Direct'Access
Bureaus
GoCardless
Set0up$time
346'months
448'weeks
Instant
Set0up$costs
£15,000+'/'year
£4004800+'monthly
£0
DD$offering
Paper,'phone,'web
Paper,'phone,'web
Online'specialists
Resource$needed
3+'FTEs
143'FTEs
Minimal
Transaction$fees
£0.0540.25
Complicated
1%'(up'to'£2)
Restrictions
Bond'with'sponsor' bank
Withhold'%'of'funds,' £800'max'transaction
None
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Direct Access Large'organisations'that'would'like'to'manage'Direct'Debit'collection' in4house'can'become'"Direct'Submitters"'into'the'Direct'Debit'system.' Doing'so'ensures'the'lowest'transaction'fees'possible,'but'the'system'is' complicated'and'requires'signiVicant'resource'(3+'FTE)'to'manage. A'Direct'Submitter'is'approved'by'their'bank'to'send'payment'requests' directly'to'the'Bacs'clearing'system.'Since'there'are'no'other' organisations'involved'transaction'fees'are'low'(typically'£0.05'4' £0.20). Direct'Submitters'are'required'to'have'the'Vinancial'and'administrative' capability'to'uphold'the'Direct'Debit'scheme.'This'includes: • Management'expertise'to'enforce'the'scheme'rules'and'liaise'with' your'sponsor'bank'on'all'Direct'Debit'processes.'In4house'Direct' Debit'knowledge'is'also'essential'to'minimising'payment'failure' rates. • Technical'expertise'to'collect,'store'and'submit'payment' information'to'Bacs'correctly.'Approved'software'is'also'required,' costing'around'£15,000'a'year. • Financial'reserves'to'absorb'any'charged'back'payments.'Generally' reserves'must'be'placed'in'a'surety'bond. For'large'companies'with'a'high'volume'of'payments,'the'low' transaction'fees'associated'with'direct'access'may'outweigh'the' overhead'costs.'However,'as'the'Direct'Debit'Scheme'rules'continue'to' evolve,'the'decision'to'outsource'may'also'be'a'question'of'expertise' and'focus. To'become'a'Direct'Submitter,'the'Virst'step'is'to'apply'to'your'bank,' who'you'will'need'to'sponsor'you'to'submit'directly.'The'approval' process'typically'takes'346'months,'and'building'capacity'may'take'a' further'6'months.
Submitting indirectly Organisations'that'don't'want'to'handle'the'implementation'details'of' Direct'Debit'can'outsource'to'a'third'party.'GoCardless'or'a'Direct'Debit' Bureau'can'manage'Direct'Debit'collections'on'your'behalf. 10
Direct Debit bureaus Direct'Debit'bureaus'handle'interactions'with'the'banks'on'your'behalf.' For'examples,'see'Eazy'Collect,'FastPay,'and'SmartDebit. Merchants'using'a'bureau'collect'paper'and'paperless'Direct'Debit' mandates'themselves,'as'usual.'However,'rather'than'submitting' payment'details'directly'to'Bacs,'they'upload'or'email'an'Excel'Vile'to' their'bureau.'The'bureau'then'handles'the'submission'on'their'behalf' and'emails'details'of'any'failures. Large'merchants'receive'payments'collected'through'a'bureau'directly' into'their'bank'account.'For'smaller'merchants,'payments'are'collected' by'the'bureau'and'paid'out'347'working'days'later.'Approximately' 5420%'of'each'collection'is'typically'withheld'to'cover'any'future' chargebacks,'and'there'is'generally'a'maximum'transaction'size'of'£500' 4'£800. Most'Direct'Debit'bureaus'do'not'publish'their'pricing,'but'typical' charges'are: • Setup'fee:'£400'4'£800'depending'on'requirements'(online'or' telephone'Direct'Debit'is'more'expensive) • Monthly'fee:'£30'minimum'fee • Transaction'charges:'£0.20'4'£0.50 • Other'fees:'£5'per'submission;'£1'per'mandate;'penalty'fees'for'any' chargebacks
Online Direct Debit with GoCardless GoCardless'is'an'online'Direct'Debit'specialist'that'manages'the'entire' collection'process'on'your'behalf.'Merchants'can'either'collect'and' manage'their'payments'using'a'simple'online'tool'or'can'integrate'with' our'REST'API. Instead'of'Villing'in'a'paper'mandate'your'customer'can'set'up'Direct' Debit'payments'to'you'online,'meaning'you'do'not'need'to'collect'and' store'paper'mandates.'As'soon'as'a'mandate'is'in'place'you'can'collect' one4off'or'recurring'payments'from'them'automatically.
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GoCardless'charges'1%'per'transaction'with'a'£2'maximum'charge.' There'are'no'set4up'fees'or'other'fees.'All'funds'are'paid'out'after'7' working'days'and'there'is'no'transaction'limit.
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Direct Debit Mandates Before'you'can'collect'payment'by'Direct'Debit,'your'customer'must' issue'you'with'a'mandate.'This'mandate'is'called'a'"Direct'Debit' Instruction",'or'DDI,'although'it'is'commonly'referred'to'as'a'"Direct' Debit'Mandate".'There'are'strict'rules'around'its'creation.
What is a Direct Debit Instruction? A'Direct'Debit'Instruction'is'an'authorisation'from'your'customer'to' collect'future'payments.'The'details'of'each'authorisation'are' standardised: 1.
All'future'payments'are'authorised'so'you'can'collect'any' amount'at'any'time'from'your'customer.
2.
Your'customer'must'be'notiOied'of'each'payment'before'it'is' collected.'See'our'guide'to'Taking'Payments'(p.'15).
3.
All'payments'are'covered'by'the'Direct'Debit'Guarantee'which' protects'customers'from'payments'taken'in'error.'See'the'Direct' Debit'Guarantee'(p.'19) 13
In'many'cases,'your'customer'will'have'a'speciVic'schedule'of'payments' in'mind,'such'as'a'Vixed'subscription,'when'they'authorise'a'DDI'to'you.' The'notiVication'requirements'of'a'DDI'and'the'Direct'Debit'Guarantee' help'protect'them'from'any'other'payments'taken'in'error'or' fraudulently.
Completing a Direct Debit Instruction form To'create'a'Direct'Debit'Instruction,'your'customer'must'complete'a' DDI'form.'Generally,'this'is'done'in'one'of'three'ways: • Paper'4'a'paper'Direct'Debit'Instruction'form'can'be'completed'by' your'customer'and'returned'to'you. • Telephone'4'your'customer's'details'can'be'collected'over'the'phone,' using'a'bank4approved'script. • Online'4'your'customer's'details'can'be'collected'online,'using'bank4 approved'payment'pages.
Paper Direct Debits The'layout'and'content'of'paper'Direct'Debit'Instruction'forms'are' strictly'controlled'by'the'Direct'Debit'scheme'rules.'The'Service'User' Guide'provides'full'details'of'these'requirements,'and'is'available'from' your'bank. Once'a'paper'form'has'been'completed'and'returned'to'you,'its'details' need'to'be'submitted'to'the'banks'(see'the'next'section).'This' submission'happens'electronically,'and'the'paper'mandate'itself'should' be'retained'by'you,'as'proof'that'your'customer'has'authorised'a'Direct' Debit.
Paperless Direct Debits Telephone'and'online'Direct'Debits'are'known'as'"Paperless'Direct' Debits".'Creating'Direct'Debit'Instructions'in'this'way'requires'special' approval'from'your'bank,'who'need'to'sign'off'on'all'information' presented'to'your'customers. Once'payment'information'and'approval'have'been'collected'from'your' customer'it'must'be'submitted'to'the'banks'(see'next'section).'There'is' no'physical'copy'of'the'mandate'to'retain,'which'can'make'proving' 14
authorisation'harder'in'any'subsequent'disputes.'See'the'Direct'Debit' Guarantee'for'more'information'on'dispute'resolution.
Submitting a completed DDI form to the banks Once'your'customer'has'completed'a'Direct'Debit'Instruction,'it'needs' to'be'submitted'to'the'banks.'This'informs'your'customer's'bank'of'the' DDI,'and'allows'you'to'collect'payments'against'it'in'future. Submissions'to'the'banking'system'are'made'through'Bacs,'the'clearing' service'for'Direct'Debit.'You'must'create'a'Vile'containing'details'of'each' DDI'and'transfer'it'to'Bacs. Once'submitted'to'the'banks,'the'Direct'Debit'Instruction'will'be'active' within'a'couple'of'working'days'(see'Timings'p.'23).'Once'active'you' can'start'taking'payments'against'it. If'anything'goes'wrong'during'the'DDI'setup'process,'you'll'be'alerted' by'a'message'from'Bacs'(see'Messages'from'the'Banks'p.'33).
Managing your Direct Debit mandates Once'a'Direct'Debit'Instruction'is'set'up,'you'can'cancel'it'by'submitting' a'cancellation'message'to'the'banks.'Your'customer'can'also'cancel'it' through'their'bank. You'will'receive'a'message'from'Bacs'whenever'there'are'changes'to' your'Direct'Debit'mandates'(for'example,'if'a'payer'cancels'their'Direct' Debit'mandate).'For'full'details'on'how'these'messages'are'received,' and'their'meanings,'see'Messages'from'the'Banks'p.'33.
Direct Debit mandates through GoCardless GoCardless'provides'an'optimised'Vlow'for'your'customers'to'create' new'DDIs'online: • Customer'setup'Olow'is'optimised,'with'simple'payment'pages. • Submitting'mandates'to'Bacs'is'handled'on'your'behalf. • DDI'management'is'automated'in'response'to'messages'from'Bacs.
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Taking payments by Direct Debit Once'you'have'a'Direct'Debit'Instruction'set'up'with'your'customer,' you'can'collect'Direct'Debit'payments'from'them'at'any'time.'To'do'so' you'just'need'to'notify'your'customer'and'submit'the'payment'to'Bacs' correctly.
Notifying your customer of payments Before'you'can'collect'a'Direct'Debit'payment'from'a'customer,'you' must'give'them'"Advance'Notice".'Essentially,'the'scheme'rules'require' that'your'customer'is'informed'of'each'payment'before'it'leaves'their' account. For'regular'payments'of'a'Vixed'amount,'a'single'payment'notiVication' containing'details'of'the'frequency'and'amount'can'be'issued.'On'the' other'hand'if'your'payments'vary,'either'in'frequency'or'amount,' advance'notice'is'required'before'each'one'and'must'contain'the' payment'date'and'amount. Notices'given'in'writing'or'electronically'should'be'as'clear'as'possible,' and'must'be'signed'off'by'your'sponsor'bank. 17
There'is'one'exception'to'the'advance'notice'requirement:'if'your' customer'explicitly'requests'that'a'speciVic'payment'is'taken' immediately'then'advance'notice'is'not'required'for'that'debit.'For' example,'your'customer'may'request'that'a'single'payment'is'taken' from'them'as'soon'as'possible,'waiving'the'need'for'advance'notice.
Submitting payment requests to the banks Payment'requests'are'submitted'to'the'banks'through'Bacs.'Each' request'is'routed'to'your'sponsor'bank'and'your'customer's'bank.'On' the'day'the'payment'is'due,'your'bank'credits'your'account,'while'your' customer's'bank'debits'theirs.'The'two'banks'then'settle4up'between' themselves. Submissions'to'Bacs'happen'through'secure,'Bacs'approved'software.' You'can'Vind'a'list'of'approved'software'providers'on'the'Bacs'website.
Post submission Once'submitted'it'takes'several'working'days'to'know'if'a'payment'has' succeeded'or'failed.''For'full'details'of'the'timings'for'Direct'Debit' payments'see'Timings'(p.'23). If'a'payment'is'successful'your'account'will'simply'be'credited.'If,'on' the'other'hand,'a'payment'fails,'Bacs'will'send'a'message'detailing'the' failure.'For'full'details'on'how'these'messages'are'received,'and'their' meanings,'see'the'ARUDD'section'in'Messages'from'the'Banks'(p.'33).
Chargebacks The'Direct'Debit'Guarantee'allows'customers'to'charge'back'any' payment'at'any'time.'Whilst'in'practice'only'0.2%'of'payments'are' charged'back,'it's'important'to'understand'the'process.'See'the'Direct' Debit'Guarantee'(p.'19)'for'more'information. Merchants'are'notiVied'of'chargebacks'via'a'message'from'Bacs'4'see'the' DDICA'section'in'Messages'from'the'Banks'(p.'33).'The'amount' refunded'to'the'customer'is'then'reclaimed'from'the'merchant' automatically'14'working'days'later.
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Taking Direct Debit payments through GoCardless GoCardless'process'Direct'Debit'payments'on'your'behalf,'including: • Notifying'customers:'GoCardless'sends'customers'a'bank4approved' advance'notice'of'each'payment. • Submitting'payment'requests:'GoCardless'handles'all'submissions' to'Bacs'on'your'behalf. • Collecting'as'fast'as'possible:'GoCardless'has'optimised'the'Direct' Debit'collection'process'to'collect'funds'as'fast'as'possible.
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The Direct Debit Guarantee The'Direct'Debit'Guarantee'protects'customers'from'payments'taken'in' error.'In'the'case'of'any'incorrect'or'fraudulent'payments,'the'payer'is' entitled'to'a'full'and'immediate'refund'from'their'bank. This'guide'describes'the'protection'your'customers'receive,'your' obligations'under'the'Guarantee,'and'how'to'dispute'an'invalid'refund' claim.
Customer protection The'Direct'Debit'Guarantee'protects'customers'in'three'ways: 1.
NotiOications'4'customers'must'be'notiVied'in'advance'of'each' payment.
2.
Refunds'4'customers'are'entitled'to'a'full'and'immediate'refund'of' any'payment'they'claim'has'been'taken'in'error.
3.
Cancellations'4'customers'can'cancel'a'Direct'Debit'mandate'at' any'time'by'contacting'their'bank.
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Each'of'the'above'protections'are'enforced'by'the'banks'and'so'form'an' intrinsic'part'of'the'Direct'Debit'scheme.'Refunds'and'cancellations'are' processed'by'the'payer's'bank'without'prior'discussion'with'the' merchant.'Failure'to'follow'notiVication'requirements'will'result'in'a' merchant'being'barred'from'the'scheme.
The refund process The'Direct'Debit'rules'around'refunds'are'particularly'strong.'A' customer'can'charge'back'any'payment,'and'will'receive'an'immediate' refund.'Further,'there'is'no'time'limit'on'when'chargeback'claims'can' be'made. To'raise'a'chargeback'claim,'a'customer'must'notify'their'bank'that' they'believe'there'has'been'an'error.'This'"error"'is'deVined'broadly,' and'includes'any'dispute'about'the'amount'taken. The'customer's'bank'will'always'accept'the'word'of'the'payer,'and' immediately'credit'them'with'a'full'refund.'They'will'then'notify'the' merchant'of'the'chargeback'via'a'DDICA'message'with'a'reason'code,' available'through'Bacs.'The'amount'refunded'to'the'customer'will'be' reclaimed'from'the'merchant'automatically'14'working'days'later.
Dispute resolution Merchants'may'not'agree'that'a'chargeback'claim'should'be'upheld.' Within'the'Direct'Debit'scheme'there'is'limited'scope'for'appeal,'but' fraudulent'chargebacks'can'be'dealt'with'in'the'courts. The'only'grounds'to'dispute'chargebacks'within'the'Direct'Debit' scheme'itself'are: 1.
The'customer's'bank'failed'to'inform'the'merchant'after'the' customer's'mandate'was'cancelled,'and'then'allowed'payment'to' be'taken'under'the'cancelled'mandate.'In'this'case'the'customer's' bank'are'liable'for'the'chargeback,'as'they'are'responsible'for'it.
2.
The'customer'claims'they'never'signed'a'Direct'Debit'Instruction,' but'the'merchant'can'produce'a'signed'paper'DDI,'which'the' customer'then'accepts.
22
Such'counterclaims'must'be'submitted'to'your'sponsor'bank'within'14' working'days'of'a'chargeback'claim'being'settled.'If'the'claim'succeeds,' it'can'take'another'120'days'for'the'funds'to'be'refunded'to'you. Given'the'limited'scope'for'appeals'within'the'Direct'Debit'scheme,' most'disputes'happen'outside'of'it.'The'Direct'Debit'Guarantee'does'not' impact'any'contractual'agreements'between'a'merchant'and'their' customer,'and'fraudulently'charging'back'a'Direct'Debit'payment'is'a' criminal'offence,'covered'by'the'2006'Fraud'Act.
The Guarantee in practice In'practice,'less'than'0.2%'of'Direct'Debit'payments'are'charged'back.' This'rate,'however,'varies'signiVicantly'depending'on'business'type,'as' does'the'severity'of'a'chargeback. The'risk'of'chargebacks'is'particularly'high'for'businesses'selling: • High'value'goods'such'as'cars,'where'the'merchant'stands'to'lose'a' lot'from'a'single'fraudulent'indemnity'claim. • Liquid'assets'such'as'currency'or'loans,'which'could'be'a'target'for' fraudulent'chargebacks. • Services'likely'to'see'chargebacks,'such'as'gambling'and'payday' loan'services.
The Direct Debit Guarantee in action at GoCardless GoCardless'helps'you'manage'chargeback'claims.'If'a'claim'is'made'by' one'of'your'customers'we'will'notify'you'immediately.'We'will'then' work'with'you'and'your'customer'to'understand'the'reason,'and'retake' the'payment'if'appropriate.
23
24
Direct Debit Timings Unlike'card'transactions,'Direct'Debit'is'not'an'instant'payment' method.'Payments'take'at'least'3'working'days'to'clear,'and'in'most' cases'advance'notice'must'be'given'to'the'payer'before'the'payment' process'can'be'initiated.
Advance notice Except'for'the'cases'below,'you'must'notify'your'customer'before' submitting'a'payment'to'be'collected'by'Direct'Debit.'By'default,'the' amount'of'advance'notice'required'is'10'working'days,'although'this' can'be'reduced'through'agreements'with'your'customer'and'with' your'bank. Notable'exceptions'to'this'rule'are: • Explicitly'authorised'payments,'where'a'customer'authorises'a' speciVic'payment'to'be'taken'immediately.'This'authorisation'can' only'apply'to'a'single'payment'at'a'time.
25
• Repeat'payments,'where'a'customer'has'already'been'notiVied'of'the' payment'schedule'(for'example,'they'were'informed'that'£10'would' be'collected'from'them'on'the'1st'of'every'month).
Timings after payment submission Once'submitted'to'the'banks,'Direct'Debit'payment'are'processed'using' the'Bacs'three'day'cycle.'Because'of'the'speciVics'of'how'Direct'Debit' works'they'can'only'be'considered'successful'if'no'failure'report'is' received'several'days'later. Full'details'of'the'optimised'collection'time'is'provided'below,'but'in' summary: • If'a'Direct'Debit'mandate'is'already'in'place,'payment'collection'takes' 4'working'days. • If'a'Direct'Debit'mandate'needs'to'be'created,'payment'collection' takes'6'working'days. The'key'to'understanding'both'payment'timings'is'the'Bacs'three'day' cycle.
The Bacs three day cycle All'Direct'Debit'processes'operate'using'the'Bacs'three'day'cycle.' Designed'in'the'1970s,'the'cycle'speciVies'the'timescales'on'which' banks'must'respond'to'input'from'each'other.
Message submitted to Bacs
Messages received by banks
Action taken
DAY 0
DAY 1
DAY 2
• Working'day'0'(submission):'A'message'(e.g.,'a'payment'request)'is' submitted'to'Bacs'between'7:00am'and'10:30pm.'Bacs'then' distribute'this'request'to'the'relevant'parties'overnight.
26
• Working'day'1'(processing):'Having'received'the'message'at' 6:00am,'the'relevant'parties'prepare'to'respond.'For'example,'your' customer's'bank'would'prepare'to'debit'their'account. • Working'day'2'(action):'All'parties'take'the'action'required.'For' example,'your'customer's'bank'would'debit'their'account,'whilst' your'bank'would'simultaneously'credit'yours. The'Bacs'three'day'cycle'is'used'for'collecting'payment'by'Direct'Debit,' setting'up'new'Direct'Debit'Instructions,'and'for'notifying'the'merchant' of'any'payment'failures.'Chaining'several'three'day'cycles'together' gives'the'optimal'timeline'for'collecting'a'payment'by'Direct'Debit.
Collecting payment against an existing DDI Two'Bacs'processing'cycles'are'chained'together'to'collect'a'payment' against'an'existing'Direct'Debit'Instruction.'Collection'therefore'takes' four'working'days:
Payment request submitted
Payer's bank receives request
Merchant credited with payment
DAY 0
DAY 1
DAY 2
Payment to merchant reversed
Merchant receives failure notification
Payment failure submitted
DAY 5
DAY 4
DAY 3
Generally,'if'a'payment'fails'the'customer's'bank'will'notify'Bacs'on' working'day'2'(the'day'the'payment'was'due).'In'some'cases,'however,' the'notiVication'is'only'submitted'the'following'day.'This'is'the'case' depicted'above,'and'happens'around'1%'of'the'time. Because'of'the'way'Direct'Debit'works,'even'payments'which'have' failed'will'be'credited'to'your'account'on'day'2.'If'a'failure'notiVication' 27
is'subsequently'received,'that'payment'will'be'automatically'reversed.' As'a'result,'a'payment'cannot'be'conVirmed'until'no'failure'notiVication' is'received'on'day'4.
Creating payment when no mandate exists If'you'don't'already'have'a'mandate'with'your'customer,'one'needs'to' be'set'up'before'payment'can'be'collected.'This'adds'an'additional'Bacs' processing'cycle,'so'collection'takes'six'working'days. As'the'diagram'adjacent'shows,'payment'requests'can'be'submitted'as' soon'as'a'mandate'has'been'approved.'Submitting'a'payment'request' before'this'(for'example'on'working'day'0),'is'explicitly'disallowed'by' the'scheme.
Non-working days and optimising timings Bacs'provide'a'deVinitive'list'of'working'days'for'the'Direct'Debit' system.'Submissions'to'the'banks'cannot'be'made'on'non4working' days,'and'the'banks'themselves'will'not'process'any'Bacs'messages'on' non4working'days. While'the'banks'may'not'work'on'non4working'days,'it'is'possible'to' receive'messages'they'previously'sent'you.'For'example,'payment' failure'reports'distributed'overnight'on'a'Friday'are'available'to' download'on'a'Saturday'morning.
Payment timings with GoCardless GoCardless'process'all'Direct'Debit'payments'according'to'the'fully' optimised'timetable'adjacent.
28
Payer's bank receives mandate Mandate approved
Merchant notified of failure
Merchant credited with payment
Mandate submitted
Payer's bank receives request
DAY 4
(DAY 3)
Payment request submitted
DAY 3
Payment failure submitted
DAY 2
DAY 2
Merchant receives failure notification
DAY 5
DAY 1
Payment to merchant reversed
DAY 6
DAY 0
DAY 7
29
30
Submitting messages to the banks In'the'Direct'Debit'scheme,'all'communications'with'the'banking' system'go'through'the'Bacs'clearing'service.'Therefore,'submitting'and' receiving'messages'from'Bacs'is'essential'to'collecting'payments'by' Direct'Debit.
The submission process New'Direct'Debit'Instructions'and'payment'requests'are'submitted'to' Bacs'by'uploading'an'"Input'File".'The'contents'of'this'Vile'depend'on' the'submission,'but'the'process'is'always'the'same: 1.
An'Input'File'is'created'with'the'required'structure.'Separate'Viles' are'required'for'DDI'and'payment'request'submissions.
2.
The'Vile'is'uploaded'using'Bacs'approved'software,'which'helps' ensure'the'security'of'the'Direct'Debit'system.
3.
Bacs'generate'an'"Input'Report"'and'send'it'to'the'submitter'to' conVirm'receipt'of'the'Vile'and'its'contents. 31
4.
Once'successfully'submitted,'the'contents'of'the'Input'File'are' processed'over'a'three'day'cycle'(see'Timings'p.'23).
Generally,'you'll'use'Bacs'approved'software'to'create'the'Input'File' itself,'but'it's'useful'to'understand'its'structure'and'a'guide'is'available' at'http://gocardless.com/direct4debit.' Note'that'a'Vile'containing'DDIs'must'not'contain'payment'requests.' Exceptions'to'this'rule'exist,'but'in'general'you'should'split'your' submission'Vile. You'may'also'have'noticed'that'payment'request'Viles'you'generate' contain'an'extra'"CONTRA"'line.'All'the'other'lines'in'an'Input'File' specify'amounts'that'must'be'debited'from'your'customer's'bank,'while' this'line'speciVies'how'much'must'be'credited'to'your'account.
Submitting Direct Debit Instructions The'transaction'codes'for'submitting'DDI'actions'to'Bacs'are'relatively' straightforward,'as'there'are'only'two'actions'a'service'user'can'take:' creation'and'cancellation.'A'different'transaction'code'is'used'for'each: Code
Use'case
0N
Create'a'new'DDI,'or're4instate'a'DDI'which'has'been'cancelled
0C
Cancel'an'existing'DDI
For'more'details'on'setting'up'DDIs,'see'Direct'Debit'Mandates'(p.'11).
32
Submitting Direct Debit payments The'transaction'codes'for'submitting'payment'requests'are'slightly' more'complicated,'as'they'depend'on'previous'payment'requests: Code
Use'case
01
The'Virst'collection'under'a'DDI.'This'code'is'also'used'after'any'transfers,' reinstatements,'or'amendments'to'a'DDI'(e.g.,'after'a'payer'updates'their' details)
17
Standard'collections'under'a'DDI.'Use'this'for'all'regular'payments
18
Retries'of'failed'payments.'Bacs'best'practice'is'NOT'to'use'this'code,'unless' your'customer'has'cancelled'their'DDI'since'the'failure.'Instead'you'should' submit'a'new'payment'request'with'the'same'transaction'code'used'for'the' failed'payment
19
Final'Direct'Debit'collections.'The'paying'bank'will'mark'your'customer's' DDI'as'expired'after'this'payment
Submitting to Bacs through GoCardless GoCardless'provides'a'simple'but'powerful'user'interface'for'creating' DDIs'and'payment'requests.'We'then'create'and'submit'all'messages'to' Bacs'for'you.
33
34
Receiving messages from the banks In'Direct'Debit,'all'communications'with'the'banking'system'go'through' the'Bacs'clearing'service.'Submitting'and'receiving'messages'from'Bacs' is'therefore'essential'to'collecting'payments'by'Direct'Debit. This'section'details'how'to'receive'updates'from'Bacs.'These'updates' include'any'payment'failures,'chargebacks,'or'changes'in'your'DDIs,' and'we'll'go'through'each'message'type.
Receiving messages from Bacs Each'working'day,'if'the'banking'system'has'messages'for'you,'Bacs'will' make'new'reports'available'to'you'at'6am.'These'can'either'be' downloaded'manually'from'the'Bacs'payment'services'site'or' processed'by'your'Direct'Debit'software. Each'report'is'for'a'separate'notiVication'type,'and'contains'a'line'for' each'event'of'that'type.'The'different'reports'and'their'reason'codes'are' described'below. 35
Direct Debit Instruction notifications NotiVications'about'your'Direct'Debit'Instructions'are'received'as' AUDDIS'(Automated'Direct'Debit'Instruction'Service)'or'ADDACS' (Automated'Direct'Debit'Amendment'and'Cancellation'Service)' messages.
AUDDIS messages AUDDIS'messages'relate'to'the'DDI'setup'process,'and'cancellations' initiated'by'the'merchant.'If'there'have'been'any'problems'with'the' setup'or'cancellation'you'll'receive'an'AUDDIS'message. Generally,'AUDDIS'messages'are'generated'by'your'customer's'bank,' and'are'received'three'working'days'after'a'DDI'is'submitted'(see'p.'23' for'more'information).'In'some'cases,'however,'Bacs'will'identify' problems'with'your'submission'before'passing'it'to'your'customer's' bank,'and'trigger'an'AUDDIS'message'immediately. AUDDIS'messages'can'be'received'for'a'number'of'reasons.'These'can' be'grouped'into'the'below. Errors'in'the'bank'account'details'you'provided: Code
Bacs'reason
More'details
2
Payer'deceased
You'have'attempted'to'set'up'a'DDI'on'the' account'of'a'deceased'person.'Extremely'rare.
3
Account'transferred
You'have'attempted'to'set'up'a'DDI'on'a' customer's'old'bank'details.'You'will'need'to' submit'a'new'DDI'using'their'new'details.
5
No'account
The'account'number'your'payer'used'doesn't' match'any'bank'accounts'at'the'branch' identiVied'by'their'sort'code.
B
Account'closed
You'tried'to'set'up'a'DDI'on'a'closed'account.
C
Account'transferred
Like'3,'but'with'new'account'details'provided'to' update'your'DDI'with.'No'need'to'resubmit.
L
Incorrect'payer's' account'details
The'sort'code'and'account'number'your' customer'provided'failed'a'publicly'available' "modulus'check"'to'test'validity.'You'can' perform'these'checks'before'submitting'to'Bacs.
36
Errors'in'the'rest'of'the'DDI,'or'the'way'you'submitted'it.'The'following' codes'should'never'appear'for'an'optimised'Direct'Debit'process: Code
Bacs'reason
More'details
7
DDI'amount'not'zero
The'"amount"'on'any'DDI'submission'should'be' zero,'as'all'DDIs'are'for'an'unlimited'amount.
I
Payer'reference'is'not' The'reference'Vield'on'the'DDI'you'submitted' unique was'already'being'used'for'another'DDI'you' have'with'this'customer.
M
Transaction'code'/''' user'status' incompatible Invalid'reference
Only'an'issue'when'converting'from'standing' orders'to'Direct'Debits.
P
Payer's'name'not' present
You'didn't'include'a'name'for'the'payer'on'the' DDI.
Q
Service'user's'name' blank
You'didn't'include'your'business'name'on'the' DDI.
O
The'reference'Vield'on'the'DDI'didn't'comply' with'AUDDIS'rules,'e.g.,'because'it'used'special' characters.
Direct'Debit'Instructions'cannot'be'set'up'on'the'requested'account: Code
Bacs'reason
More'details
F
Invalid'account'type
The'account'belongs'to'a'type'of'accounts'which' can't'have'DDIs'set'up'on'them.'For'example,' some'savings'accounts'do'not'allow'Direct' Debits.
G
Bank'will'not'accept' Direct'Debits'on' account
Direct'Debits'are'disabled'for'this'speciVic' account,'for'example'because'the'customer'has' requested'this'from'their'bank.
N
Transaction'disallowed' Direct'Debits'can't'be'collected'from'this'sort' at'payer's'branch code.'For'example,'this'sort'code'may'be' reserved'for'savings'accounts.
37
Errors cancelling a DDI: Code
Bacs'reason
More'details
1
Instruction'cancelled'' by'payer
Usually'received'when'cancelling'a'DDI'that'has' already'been'cancelled.'Exceptionally,'may'be' sent'when'the'customer'cancels'their'DDI' shortly'after'setup,'and'the'bank'incorrectly' sends'an'AUDDIS'message'instead'of'an' ADDACS'message.
6
No'instruction
There'was'no'Direct'Debit'Instruction'to'cancel' matching'the'details'you'submitted.
H
Instruction'has'expired The'Direct'Debit'Instruction'you'requested'to' cancel'had'already'expired.
K
Instruction'cancelled'' by'paying'bank
38
Similar'to'1,'but'the'original'cancellation'was' triggered'by'the'paying'bank.
ADDACS messages ADDACS'messages'relate'to'amendments'or'cancellations'of'DDIs'that' are'made'by'your'customers.'They'are'not'avoidable,'as'all'ADDACS' reports'are'triggered'by'your'customers,'but'some'require'you'to'take' speciVic'action. ADDACS'messages'can'be'grouped'into'those'relating'to'cancellations,' and'those'relating'to'amendments,'as'below. The'DDI'has'been'cancelled: Code
Bacs'reason
More'details
0
Instruction'cancelled'4' Catch4all'for'cancelled'instructions. refer'to'payer
1
Instruction'cancelled'' by'payer
2
Payer'deceased
B
Account'closed
Your'customer'closed'their'bank'account,'which' has'cancelled'your'DDI'with'them.
D
Advance'notice' disputed
Your'customer'has'notiVied'their'bank'that'they' dispute'the'amount'of'notice'speciVied'on'their' DDI.'As'a'result,'the'DDI'has'been'cancelled.' This'is'exceptionally'rare.
Your'customer's'bank'cancelled'their'DDI'at' their'request.
The'DD'has'been'amended: Code
Bacs'reason
More'details
3
Account'transferred''''' Includes'new'bank'details,'to'which'you'will' to''a'new'bank'or' need'to'send'a'new'DDI. building'society
C
Account'transferred''''' Includes'new'bank'details.'There'is'no'need'to' to''a'new'bank'or' send'a'new'DDI,'but'you'should'update'your' building'society records.
E
Instruction'amended
R
Instruction're4instated A'cancelled'DDI'has'been're4instated'by'your' customer's'bank.
Your'customer'has'changed'the'name'or'other' details'on'their'DDI,'and'you'should'update'your' records.'No'need'to'submit'a'new'DDI.
39
Payment request notifications NotiVications'about'payment'requests'you've'submitted'are'received'as' ARUDD'(Automated'Return'of'Unpaid'Direct'Debit)'or'DDICA'(Direct' Debit'Indemnity'Claim'Advice)'messages.
ARUDD messages For'successful'payment'requests'you'won't'receive'any'notiVication' from'Bacs'at'all.'If,'on'the'other'hand,'your'payment'fails,'you'll'receive' an'ARUDD'message'with'a'reason'code'describing'the'failure. Many'of'the'reasons'for'payment'failure'can'be'easily'avoided.'Below'is' a'comprehensive'list'of'all'failure'reasons,'with'details'of'how'to'avoid' them. InsufVicient'funds.'Once'optimised,'this'should'be'90%'of'the'ARUDD' messages'you'receive: Code
Bacs'reason
More'details
0
Refer'to'payer
The'payer's'bank'wasn't'in'a'position'to'pay'the' Direct'Debit.'This'is'almost'always'due'to' insufVicient'funds,'but'is'occasionally'used'as'a' catch4all'for'other'failure'reasons.'Generally'you' should'contact'your'customer'and'arrange'to're4 try'taking'the'payment.
DDI'no'longer'up4to4date.'These'failures'are'largely'avoidable'by' regularly'processing'ADDACS'reports.'They'cannot'be'entirely' eliminated,'however,'due'to'the'time'lag'between'payment'submission' and'collection: Code
Bacs'reason
More'details
1
Instruction'cancelled
You'tried'to'collect'payment'against'a'cancelled' DDI.
2
Payer'deceased
Your'customer's'DDI'will'also'have'been' cancelled.
3
Account'transferred
Your'customer's'DDI'has'been'transferred'to'a' new'bank'account,'and'you'submitted'payment' to'the'old'account.
40
Code
Bacs'reason
More'details
5
No'account'(OR'wrong' The'paying'bank'didn't'recognise'the'account' account'type) number'you'submitted.'It's'likely'that'no'DDI'is' set'up.
6
No'instruction
Your'customer'doesn't'have'a'DDI'set'up'with' you.'In'rare'cases,'this'may'be'due'to'a'small' bank'requiring'additional'time'to'set'up'a'Direct' Debit.
B
Account'closed
Your'customer's'DDI'has'been'cancelled'as' they've'closed'their'bank'account.
Mistakes'in'payment'request'submission.'The'following'reason'codes' should'never'appear'for'an'optimised'Direct'Debit'process: Code
Bacs'reason
More'details
8
Amount'not'yet'due
Usually'caused'by'submission'of'a'payment' before'a'DDI'is'fully'set'up'(less'than'2'working' days'after'submission'4'see'timings).'This'may' also'be'raised'if'you'attempt'to'take'a'payment' before'the'date'your'customer'was'notiVied'of.
9
Presentation'overdue
You'attempted'to'collect'a'payment'more'than'3' working'days'after'the'date'you'notiVied'your' customer'of.
A
Service'user'differs
Your'details'don't'match'the'details'on'the' customer's'DDI.
Customer'disputes'payment: Code
Bacs'reason
More'details
4
Advance'notice' disputed
Your'customer'has'disputed'having'been' notiVied'of'this'Direct'Debit.
7
Amount'differs
Your'customer'has'disputed'that'the'amount' taken'differs'from'the'amount'they'were' notiVied'of.
41
DDICA messages If'one'of'your'payments'is'charged'back,'you'll'receive'a'DDICA'(Direct' Debit'Indemnity'Claim'Advice)'report'from'Bacs.'For'more'information' about'chargebacks,'see'the'Direct'Debit'Guarantee'(p.'19). The'reasons'for'indemnity'claims'can'be'grouped'into'three'distinct' areas. Problems'with'a'speciVic'payment'collection: Code
Bacs'reason
1
Amount'and'/'or'date'of' Direct'Debit'differ'from' Advance'Notice
2
No'Advance'Notice' received'by'Payer,'or'''' the'amount'quoted'is' disputed
More'details
This'is'used'as'the'"catch4all"'reason'code'for' customer'charge'backs.
Payments'collected'after'a'Direct'Debit'instruction'has'been'cancelled: Code
Bacs'reason
More'details
3
DDI'cancelled'by'' paying'bank
Your'customer's'bank'had'cancelled'your' customer's'DDI,'but'incorrectly'accepted'a' payment'on'it.
4
Payer'has'cancelled'' DDI'direct'with'''' service'user
Your'customer'claims'they'had'cancelled'their' DDI'with'you'before'you'took'a'payment.
Payer'disputes'having'set'up'a'DDI: Code
Bacs'reason
More'details
5
No'Instruction'held
Payer'disputes'having'given'authority.
6
Signature'on'DDI'is' fraudulent'or'not'in' accordance'with' account'authorised' signature(s)
A'DDI'is'held,'but'was'created'fraudulently.
42
Code
Bacs'reason
More'details
8
Service'user'name' disputed
Payer'does'not'recognise'service'user'collecting' Direct'Debit.
There'is'also'a'reason'code'for'indemnity'claims'raised'at'the' merchant's'request.'This'is'the'safest'way'to'refund'a'payment'taken'by' Direct'Debit,'as'it'ensures'a'subsequent'chargeback'cannot'be'raised' (which'would'cause'the'refund'to'be'paid'twice): Code
Bacs'reason
More'details
7
Claim'raised'at'service' These'chargebacks'are'triggered'by'the' user's'request'after' merchant'themselves. Direct'Debit'applied'to' payer's'account
43
44
What is SEPA Direct Debit?
SEPA'Direct'Debit'is'a'pan4European'Direct'Debit'system.'Currently,'it' operates'alongside'national'Direct'Debit'schemes,'including'UK'Direct' Debit,'but'in'February'2014'it'will'begin'replacing'these'systems. This'guide'provides'a'high'level'overview'of'the'SEPA'Direct'Debit' scheme.'Further'details'are'available'from'GoCardless'or'the'European' Payments'Council.
SEPA DD allows collection from any Euro account SEPA'Direct'Debit's'key'innovation'is'to'create'a'single'system'for' collecting'from'any'bank'account'in'the'Euro'area. Currently,'SEPA'Direct'Debit'allows'collection'from'almost'all'Euro4 denominated'bank'accounts'in'the'Single'Euro'Payments'Area,' including'any'account'which'is'accessible'by'a'national'Direct'Debit' scheme.'The'accounts'that'are'not'accessible'are'generally'savings' accounts.
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In'future,'SEPA'Direct'Debit'will'also'allow'collection'from'all'non4Euro' accounts.'Currently,'however,'participation'in'the'SEPA'Direct'Debit' scheme'for'bank'accounts'not'denominated'in'Euros'is'at'the'discretion' of'each'bank,'and'many'UK'bank'accounts'do'not'allow'collection'by' SEPA'Direct'Debit.
SEPA will replace national Direct Debit schemes Currently'the'SEPA'Direct'Debit'scheme'operates'alongside'national' Direct'Debit'schemes,'such'as'UK'Direct'Debit.'It'is'therefore'possible'to' collect'payment'through'both'SEPA'and'a'national'scheme,'for'example,' to'collect'European'payments'alongside'UK'payments. In'the'coming'years,'SEPA'will'begin'to'replace'the'national'schemes'it' currently'operates'alongside: • 1st'February'2014.'Deadline'for'migration'of'Euro4area'national' schemes'to'SEPA'Direct'Debit.'After'this'date'national'schemes'in'the' Euro4area'will'be'switched'off,'and'their'collections'routed'through' SEPA. • 31st'October'2016.'Deadline'for'migration'of'non'Euro4area' national'schemes,'including'UK'Direct'Debit.'As'above,'national' schemes'will'be'switched'off'after'this'date. The'requirements'to'migrate'to'SEPA'Direct'Debit'vary'by'country,'but' most'countries'will'require'signiVicant'changes'to'the'way'merchants' interact'with'the'scheme.'Managing'these'changes'will'require' signiVicant'work'from'both'Direct'Debit'collectors'and'the'banking' system.
Key differences to UK Direct Debit The'fundamentals'of'the'core'SEPA'Direct'Debit'scheme'are'similar'to' UK'Direct'Debit: • Payers'authorise'merchants'to'take'variable'future'payments'from' their'account'by'issuing'them'a'mandate. • Once'this'authorisation'is'in'place,'the'merchant'just'needs'to'notify' the'customer'before'taking'the'payment'automatically. There'are,'however,'three'key'features'of'SEPA'Direct'Debit'that'differ' from'the'UK'system: 46
1.
Currency'M'all'SEPA'Direct'Debit'transactions'happen'in'Euros' (even'if'the'relevant'accounts'aren't'in'Euros).'Any'currency' exchange'required'is'up'to'the'payer's'and'collector's'banks.
2.
Chargebacks'4'under'SEPA,'payers'can'query'payments'and'get'a' refund'from'their'bank'for'up'to'13'months.'Under'UK'Direct'Debit' the'chargeback'period'is'unlimited.
3.
Bank'details'4'to'collect'using'SEPA'Direct'Debit,'you'need'a' customer's'BIC'and'IBAN.'Generally'these'can'be'generated'from' details'the'customer'is'more'familiar'with.
In'addition,'many'implementation'details'of'SEPA'Direct'Debit'differ' from'its'UK'counterpart.'Payment'timings,'the'way'mandates'are' stored,'and'the'submission'process'are'all'different,'and'are'detailed'in' the'rulebook'for'SEPA'Direct'Debit.
Accessing SEPA through GoCardless GoCardless'will'be'beta'testing'SEPA'Direct'Debit'in'the'coming'months.' Initially,'we'will'allow'UK4based'merchants'to'collect'from'select' European'countries.'We'will'then'expand'the'countries'we'collect'from' to'cover'all'of'SEPA,'and'begin'to'serve'non4UK'merchants.
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Glossary ADDACS'messages
Automated'Direct'Debit'Amendment'and'Cancellation' messages'notify'Service'Users'of'amendments'and' cancellations'made'by'their'customers'to'their'DDIs.
Advance'Notice
Notice'that'must'be'given,'under'the'Scheme'rules,'to' customers'of'each'payment'before'it'leaves'their'account.
ARUDD'messages
Automated'Return'of'Unpaid'Direct'Debits'messages'notify' Service'Users'of'any'unpaid'Direct'Debits.
AUDDIS
The'AUtomated'Direct'Debit'Instruction'Service,'through' which'all'Service'Users'must'now'submit'requests'to'Bacs.
AUDDIS'messages
AUtomated'Direct'Debit'Instruction'Service'messages' notify'Service'Users'of'issues'setting'up'or'cancelling'a' Direct'Debit'Instruction.
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Bacs
The'clearing'system'that'administers'the'Direct'Debit' scheme'4'all'Direct'Debit'communications'go'through'Bacs.' Originally'an'acronym'for'"Bankers''Automated'Clearing' Services",'you'will'sometimes'see'Bacs'written'as'BACS.
Bacs'payment'cycle
All'communications'through'Bacs'operate'on'the'Bacs' three'working'day'cycle.
BacstelMIP
The'secure'internet4based'service'provided'by'Bacs'for' communications'between'Service'Users'and'Bacs.
BacstelMIP'software
A'Bacs'approved'software'package'must'be'used'to' communicate'over'Bacstel4IP.
Bureau
An'organisation'that'submits'Direct'Debit'requests'to'Bacs' on'behalf'of'a'3rd'party,'who'may'or'may'not'have'their' own'Service'User'Number.'A'list'of'approved'bureaux' is'published'by'Bacs.
Chargeback
A'payment'refunded'to'the'payer'after'a'claim'under'the' Direct'Debit'Guarantee.'Customers'who'claim'against'the' Direct'Debit'Guarantee'are'refunded'immediately'and'in' full.
Counter'claim
The'claim'raised'by'a'Service'User'to'dispute'a'chargeback' from'a'customer.'Counter'claims'must'be'made'within'14' days'of'a'chargeback'being'settled.
DDICA'messages
Direct'Debit'Instruction'Cancellation'and'Amendment' messages'notify'Service'Users'of'chargebacks'from'their' customers.
Direct'Debit'Guarantee
The'guarantee'given'on'all'payments'made'by'Direct'Debit.
Direct'Debit'Instruction
An'authorisation'from'your'customer'to'collect'future' payments'automatically.'To'set'up'a'DDI'your'customers' must'complete'a'standardised'form.
Direct'Debit'Instruction' A'paper'form'that'customers'must'complete'to'authorise'a' form Direct'Debit'Instruction'to'you. Direct'Debit'Mandate
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Alternative'name'for'a'Direct'Debit'Instruction.
Due'date
The'date'a'payment'is'due'to'be'debited'from'a'payer's' account.
Facilities'Management
A'service'provided'by'a'Bureau'in'which'they'submit' payments'to'Bacs'on'your'behalf'under'a'Service'User' Number'they'own'but'lease'to'you.
Indemnity'claim
A'claim'made'by'a'paying'bank'to'recover'charged'back' payments'from'the'Service'User.
Input'Oile
A'Vile,'in'a'standardised'format,'submitted'to'Bacs'by' Service'Users'to'lodge'new'Direct'Debit'Instruction'and' payment'requests.
Input'report
Every'time'a'Service'User'submits'payments'or'DDIs'to' Bacs,'they'receive'an'Input'Report'summarising'the' submission.
Managed'Administration A'service'provided'by'a'Bureau'in'which'they'submit' payments'to'Bacs'on'your'behalf,'under'your'own'Service' User'Number. Paperless'Direct'Debit
Process'for'authorising'a'Direct'Debit'Instruction'over'the' phone'or'online,'instead'of'with'a'paper'form.
Paying'bank
The'bank'or'building'society'at'which'a'customer's'DDI'is' lodged.
SEPA'Direct'Debit
A'single'Direct'Debit'Scheme'which'applies'across'the' whole'Single'European'Payments'Area.
Service'User
An'organisation'approved'by'a'sponsor'bank'to'submit' Direct'Debit'requests'to'Bacs.
Service'User'Number' (SUN)
A'6'digit'unique'identiVier'issued'to'every'Service'User.
Sponsor'Bank
A'bank'that'enables'you'to'access'the'Direct'Debit'Scheme' and'provides'you'with'a'Service'User'Number.
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Unpaid'Direct'Debits
Payments'which'could'not'be'collected'from'the' customer's'account,'for'a'variety'of'reasons,'including' insufVicient'funds.
Working'Days
Submissions'to'Bacs'can'only'occur'on'working'days,' which'exclude'weekends'and'bank'holidays.'Bacs'provide' a'deVinitive'list'of'working'days'for'the'Direct'Debit' system.
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