For any business managing Direct Debit payments from clients or customers, navigating the rules and regulations can be complicated. Direct Debit payments are overseen and regulated by Bacs, which is part of Pay.UK.
As an organisation operated by the UK’s major banks and financial institutions, Bacs administers Direct Debits, ensuring that businesses collecting Direct Debit payments adhere to their rules in order to protect customer rights. The organisation also helps to maintain security and transparency throughout the whole system.
An integral aspect of the entire Direct Debit process, the Direct Debit Guarantee is a safeguard that protects customers from any incorrect payments being taken from their accounts without their knowledge. The guarantee offers a full and immediate refund in the event of any unauthorised, non-compliant or inaccurate debits from a customer’s account.
Understanding and anticipating how refunds and indemnity claims work via the Direct Debit Guarantee can help businesses to manage their financial flows more effectively, mitigate losses and plan more strategically. In this article, we explore key details about refunds and indemnity claims that can occur with Direct Debit payments.
Contents
- What is an indemnity claim?
- Are refunds and indemnity claims different?
- How do refunds and indemnity claims work under the Direct Debit Guarantee?
- Agile Direct Debit payment services from Interbacs.
What is an indemnity claim?
In the context of Direct Debit payments, an indemnity claim is the means by which the payer of a Direct Debit can reclaim their money back if the payment was taken incorrectly, none-compliantly or was not authorised to be collected.
A Direct Debit indemnity claim is one of the key security measures afforded by the Direct Debit Guarantee. If a bank or financial organisation has taken a Direct Debit payment without the approval of the payer, if the payer was deemed unfit to initiate a new financial instruction at that time or else classed as vulnerable, or if the details are not correct, fully and clearly agreed to by the customer nor fully adhering to the Bacs rules, then the customer has the right to a full and immediate refund from the bank.
The types of errors that can lead to a refund may include taking a payment after the Direct Debit has been cancelled, taking the wrong amount or withdrawing an amount without giving sufficient advance notice.
Once this refund has been approved, the amount will be reclaimed from the bank account of the recipient service provider (your business). Service providers are able to dispute a refund if they have evidence that an error did not occur. This action has to be taken shortly after the refund, usually within 14 days. Preventative controls, such as server-side validation, ID verification, and stringent quality control, play an important role in reducing payment fraud and disputed indemnity claims.
Are refunds and indemnity claims different?
A refund and an indemnity claim are different from each other, but they are both part of the Direct Debit indemnity claim process. A refund is the actual money that is returned to the payer if there is evidence that the payment was taken incorrectly or was unauthorised.
A Direct Debit indemnity claim is the formal process the customer undertakes with their bank to reclaim the money paid from the payer to the recipient’s (service provider) bank account after the refund has been paid. Generally, this is an automatic process, unless the service provider is disputing the claim.
How do refunds and indemnity claims work under the Direct Debit Guarantee?
An indemnity claim typically follows this pattern under the Direct Debit Guarantee:
- A payer believes that a Direct Debit payment is unauthorised, incorrect in amount, date of payment or frequency or else fraudulent, not meeting the scheme rules.
- The payer contacts their bank and requests to launch an indemnity claim. This is their right under the guarantee.
- The payer’s bank reviews this claim to see if it is legitimate.
- If the claim is upheld, the payer will receive a full and immediate refund.
- The payer’s bank then starts an indemnity claim through a Direct Debit Indemnity Claim Advice (DDIC) report. This can be disputed by the recipient/service provider, but must be done so within 14 days.
Agile Direct Debit payment services with Interbacs
Without clear processes and specialist support, Direct Debit payment collection can be challenging for businesses. At Interbacs, you’ll find that we have years of Bacs regulation experience to support you with strategic insight and transparent guidance, helping you best advise your customers and gain the maximum benefits from your payment services.
And if you want to know more about Bacs, why not consult our Bacs compliance and security explained: the complete business guide for more information?
With a proven track record in successful Direct Debit management for all types and sizes of businesses and with a compelling industry reputation, Interbacs are well positioned to support all of your business account needs.
Contact Interbacs today for a personalised consultation and discover how we can optimise your direct debit processes.
