Last editedJun 20234 min read
Taking Direct Debit payments involves the secure and automated collection of funds from a payer's bank account, initiated by the recipient with prior authorisation from the payer. It's an efficient payment method for recurring bills, subscriptions, or memberships, as it mitigates late or missed payment risks. Direct debit provides businesses with predictable cash flow and reduces manual admin while offering consumers a convenient, reliable and secure way of making payments.
A Direct Debit can be set up via:
secure online banking,
over the phone,
through a paper Direct Debit Instruction form.
Once a Direct Debit is set up and authorised, you can:
collect payments from your customers anytime,
vary the payment amount,
vary the collection date,
automate payment collection,
reduce manual admin
Direct Debit rules:
payment requests must be submitted through Bacs,
the customer must be notified in advance,
The customer is protected by the Direct Debit Guarantee.
A Direct Debit can take several working days to be processed.
In this guide on taking Direct Debit payments, you will learn about the following:
notifying your customers,
submitting payment to Bacs
the response messages you will receive
how to simplify this process with GoCardless
How to collect Direct Debit payments with GoCardless
Create your free GoCardless account, access your user-friendly payments dashboard & connect your accounting software (if you use one).
Easily set up & schedule Direct Debit payments via payment pages on your website checkout or secure payment links.
From now on you'll get paid on time, every time, as GoCardless automatically collects payment on the scheduled date. Simple.
How to take Direct Debit payments
1. Notifying your customer of payments
Before collecting 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.
A single payment notification containing details of the frequency and amount can be issued for regular payments of a fixed amount. On the other hand, if your payments vary in frequency or amount, advance notice is required before each one and must contain the payment date and amount.
Notices in writing or electronically should be as clear as possible and must be signed off by your sponsor bank.
There is one exception to the advance notice requirement: if your customer explicitly requests that a specific 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.
2. 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. Your bank credits your account on the day the payment is due, while your customer's bank debits theirs. The two banks then settle up between themselves.
Submissions to Bacs happen through secure, Bacs-approved software. More detail on the submission process is available here.
Once submitted, it takes several working days to know if a payment has succeeded or failed. Full details of the timings for Direct Debit payments are in our timings guide.
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.
The Direct Debit Guarantee allows customers to request a refund for Direct Debits taken from their account at any time. Whilst only 0.2% of payments receive such refund requests in practice, it's important to understand the process. See the Direct Debit Guarantee for more information.
Merchants are notified of refund requests via a message from Bacs (see the DDICA section in Messages from the Banks). The amount refunded to the customer is then reclaimed from the merchant automatically 14 working days later.
Taking Direct Debit payments through GoCardless
GoCardless provide SMEs with fully managed and cost-effective access to the Direct Debit scheme via our API, the easy-to-use merchant dashboard, or one of our 350 integration partners, such as Xero, QuickBooks, or Sage.
Payments can be set up in just a few clicks by logging onto the merchant dashboard and entering your payment amounts, dates and customer details, through your partner software or via your API integration.
GoCardless sets up and processes Direct Debit payments on your behalf, taking care of all the administrative, regulatory and legal requirements for you, including:
Customer authorisation: GoCardless automatically sends authorisation forms to customers.
Notifying customers: GoCardless sends customers a bank-approved 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 quickly.
There is no contract or long-term commitment to get started with GoCardless - we offer pay-as-you-go and transparent pricing. With extensive documentation and award-winning support, you’re never on your own.
Customers love paying by Direct Debit because it is convenient and secure, with robust protection delivered through the Direct Debit Guarantee. Indeed 89% of payers trust bank payments more than other methods.
Want all the benefits of Direct Debit but without all the hassle & expense of dealing with banks?
GoCardless does all the heavy lifting for you so you can collect payments on time every time with just a few clicks!
In an ambitious drive to grow and scale while keeping costs in check, UK-based technology services provider Datasharp overhauled their accounting and payment systems, implementing GoCardless with Sage 50 integration. Joe Dowling, Finance Manager at Datasharp, lauded GoCardless's integration with Sage as the "key selling point", which not only streamlined operations but also significantly improved financial efficiency.
The shift to Sage 50 drastically simplified their nominal codes, while the automation of Direct Debit collections with GoCardless further drove efficiencies.
GoCardless's expert support team played a critical role during the implementation phase, migrating mandates and facilitating customer charging through Sage. The integration of GoCardless and Sage 50 also enabled the company to save time and money, Joe explained,
“We spent an extra £9,000 upgrading, but factor in the lower headcount and we’ve saved at least £15,000 - £20,000 per annum with GoCardless.”
The team has also been freed from the hassle of wrangling Excel spreadsheets and troubleshooting formatting errors.
“Before we had to extract Excel spreadsheets as part of our billing and reconciliation runs, and you’d always find weird formatting issues. Now we literally press one button and payments are marked off against all customer accounts. Our billing and payment runs are 50% faster, probably more.”
Additionally, the elimination of paper Direct Debit mandates has expedited customer sign-ups, leading to accelerated cash flow. Dowling noted the convenience of receiving email notifications in case of mandate cancellation or failed payments, enhancing visibility and offering a user-friendly experience.
Ultimately, the GoCardless and Sage 50 integration has transformed Datasharp's accounting and payment functions into a highly efficient system. "Efficiency, cash in the bank, a great product," Dowling summarised GoCardless, underlining its role in helping the team focus on growing the business rather than worrying about credit control.
Click here to find out more about collecting Direct Debits with GoCardless.