What Is a Direct Debit Instruction? How payment authorisation works

Any enterprise that is consumer-facing and provides goods or services will likely want to present a simple, convenient but secure method of payment for its customers.

For many, Direct Debit payments fulfil this brief. Offering customers an option that involves one set-up, flexible management, and a range of consumer protections is clearly an attractive and aspirational prospective for both businesses and their customers.

However, there are rules in place that require certain steps to be followed and administrative evidence to be completed before a Direct Debit payment can be installed and actioned.

In this article, we explore exactly what a Direct Debit Instruction is and how payment authorisation works to support safe, compliant, reliable and efficient customer payment processing.

Contents

• What is a Direct Debit Instruction?
• What are the legal requirements of a Direct Debit Instruction?
• How does payment authorisation work?
• Professional Direct Debit payment services with Interbacs.

What is a Direct Debit Instruction?

A Direct Debit Instruction (DDI) begins as the mandate form (largely digital nowadays with some companies still using paper mandates) which gives a customer’s authorisation for a business to take an agreed amount from their bank account and any ongoing frequency. The DDI also contains the Direct Debit guarantee and is an essential aspect of the entire Direct Debit process.

A Direct Debit Instruction should include:

• Customer information: customer name, address and banking details (account number and sort code) are required on the DDI.
• Customer authorisation: the customer, or payer, has to give their permission for the payee or recipient to take an approved amount of money from their account as well as approval of dates & frequencies of collection via the subsequent advance notice.
• Reference details: a DDI should contain an individual reference number that enables this transaction to be tracked.

Overall, the DDI acts as a consent form, from customer to business, that endorses the payment of an approved amount of funds to be taken from their account. In terms of frequency, this could be a one-off payment, irregular in nature or a regular payment.

Read our recent blog to find out the benefits of direct debit management services.

What are the legal requirements of a Direct Debit Instruction?

Organising and managing Direct Debits requires businesses to follow a robust set of procedures and uphold a strict set of standards outlined by the Bacs Service User Guide and Pay.UK (the company that oversees Bacs operations in the UK).

• The Direct Debit Instruction

This is the first step requiring completion when setting up and managing any Direct Debit payment in the UK. Bacs states that service users must otain explicit customer consent for the payment with the DDI being filled out by or with the customer.

This process can be fulfilled either on paper, over the phone or online. Without this definite customer authorisation, a business cannot legally collect Direct Debit payments from this customer.

• Advance customer notice

To ensure transparency and to allow customers to make sure they have enough funds in their account before a payment is made, an advance notification is necessary.

Bacs requires all businesses managing Direct Debits to give their customers around 10 working days of notice before an amount is taken or a payment’s date, amount or frequency is changed in any way. This can differ with larger organisations where the sponsoring bank can accommodate a shorter period, though this tends to be less prevalent.

• Uphold the Direct Debit Guarantee

The Direct Debit Guarantee is the mechanism by which customers are safeguarded against any incorrect, fraudulent or erroneous Direct Debit payments. If an error is made and an unauthorised payment is taken from a customer’s account, they are able to obtain an immediate refund.

The Direct Debit Guarantee ensures the customer has the right to:

• Cancel their Direct Debit at any time by contacting their bank.
• Advance notice of any Direct Debit payment changes in amount, payment date or frequency.
• An immediate refund if a payment is taken from their account in error.

How does payment authorisation work?

In general, the Direct Debit payment authorisation process works using the following steps:

1. The DDI is completed by the customer and contains their name, address, bank account details and their permission for a business to take an agreed payment from them.
2. The customer’s bank or Bacs solution provider approves the Direct Debit mandate, ensuring the customer’s bank account details are correct. KYC and Identity checks are mandated by Bacs to ensure bank account ownership of the payer
3. The customer must be given appropriate advance notice of a payment collection, including the recipient organisation/payee details, amount, date and frequency of the transaction.
4. Once approved, the payment will be taken automatically from the customer’s account on the stated date or dates without the customer having to take any additional actions.
5. If a customer decides to cancel a Direct Debit, they contact their bank to arrange this. The recipient business will be notified through the ADDACS (Automated Direct Debit Amendment and Cancellation Service) report. In the case of any unpaid direct debits occurring, they will receive an ARUDD report (Automated Return of Unpaid Direct Debit). These reports are available via payment services or via your Bacs solution provider.

Professional Direct Debit payment services with Interbacs

Gain peace of mind with a Bacs payment service provider that has the depth of experience to seamlessly guide you, from Direct Debit Instruction completion to payment collection. At Interbacs, we have the specialist knowledge to effectively support you and your customers.

As one of the UK’s first and leading Bacs-approved facilities management providers and Bacs-approved bureaus, we have an advanced understanding of industry standards, compliance regulations and security technologies to ensure your payments are kept safe.

Get in touch with our expert team for a friendly chat or discover more about payment processing by browsing our payment services page.