Taking payments by Direct Debit

A Direct Debit can be set up via secure online banking, over the phone or through a paper Direct Debit Instruction form. As an organisation, you can collect Direct Debit payments from your customers at any time. Payment requests need to be submitted through Bacs and the customer needs to be notified in advance. A Direct Debit can take several working days to be processed.

This guide will walk you through notifying your customer, submitting a payment to ACH, and the response messages you will receive.

How to take Direct Debit payments

1. 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 fixed amount, a single payment notification 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.

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 ACH. 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 settle-up between themselves.

Submissions to ACH happen through secure, ACH approved software. More detail on the submission process is available here.

3. Post-submission

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, ACH 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.

Indemnity claims

The Direct Debit Guarantee allows customers to request a refund for Direct Debits taken from their account at any time. Whilst in practice only 0.2% of payments receive such refund requests, 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 process Direct Debit payments on your behalf, including:

• Notifying customers: GoCardless sends customers a bank-approved advance notice of each payment.

• Submitting payment requests: GoCardless handles all submissions to ACH on your behalf.

• Collecting as fast as possible: GoCardless has optimised the Direct Debit collection process to collect funds as fast as possible.