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How do Bacs Direct Debit rules apply to my business?

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Last editedApr 20233 min read

Few people in business would seek to deny the convenience and efficiency of the Direct Debit scheme when it comes to handling regular payments in and out of the business. What some businesses might not be fully aware of, however, is the existence of strict direct debit rules, known as the Direct Debit Scheme Rules. This article contains a brief summary of the direct debit rules which apply to anyone using the scheme. 

Why the direct debit rules exist

The direct debit rules have been put in place so that the parties and organisations using the scheme – which includes the bank or building society that “sponsors” each business to use the scheme – are fully compliant. 

Key direct debit rules

The full list of direct debit rules is lengthy and complex, covering all aspects of handling direct debits whether working electronically or on paper. There are some key rules that form the foundation of using the scheme, however, and they are as follows:

  • New users submitting DDIs (Direct Debit instructions) direct to Bacs must do so via the AUDDIS (Automated Direct Debit Insurance Service). This is largely straightforward for most businesses and is advantageous as it allows for collection of the first Direct Debit just two days after submission. 

  • All documentation intended to be used in Direct Debit operations must be submitted by you to your ‘sponsor’ (bank or building society) for approval.

  • The DDI must follow the format prescribed by the sponsor and be issued to the payer alongside the Direct Debit guarantee.

  • On completion of the DDI, you must record all relevant information before logging it with the payer’s bank.

  • If it’s rejected, the DDI will be returned to you.

  • You must ensure all payments collected can be done so legally without contravening consumer protection.

  • The banks themselves are not to be held responsible for any contract between you and the payer.

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Setting up a direct debit

Any organisation submitting direct debit instructions to Bacs must do so via the Automated Direct Debit Instruction Service (AUDDIS). And all the documentation an organisation intends to use as part of its direct debit operations needs to be submitted to a sponsor (a bank or building society) for prior approval.

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The next step is to set up a direct debit instruction (DDI). This is the means via which a business can access the authority of the person/organisation paying the direct debit, and the details needed to debit the relevant account. The DDI itself needs to be designed and formatted as agreed by the sponsor. 

When the DDI is issued to the payer it has to be accompanied by the Direct Debit Guarantee, and once the DDI process has been completed, the following rules apply:

  • When the payer has returned the DDI, the onus is on the business using the direct debit service to ensure that all the relevant information is in place before lodging the instruction with the payer’s bank.

  • The payer’s bank will then either accept or reject the DDI. 

When the business actually collects the direct debits in question, it must comply with two highly specific rules:

  • The business is fully responsible for ensuring that the funds can be legally demanded and collected in this manner and that the consumer protection rules or other relevant legislation in place aren’t being contravened.

  • The banks that facilitate the use of direct debit to collect payments bear no responsibility for the contract formed between the business and the payer.

The direct debit rules state that each DDI has to include the following information:

  • The name and address of the person/organisation using the direct debit service

  • The official direct debit logo

  • Details of the service user’s Service User Number (SUN)

  • A heading that says “Instruction to your bank or building society to pay by direct debit”

  • The name and full postal address of the bank or building society that hosts the payer’s account

  • The name or names of the relevant account holder or holders

  • The branch sort code for the payer

  • The bank or building society account number of the payer 

  • The reference that applies to the service user

  • An instruction from the payer to debit their account, with reference to the Direct Debit Guarantee

  • Dated signature or signatures under the Direct Debit Guarantee

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Interested in automating the way you get paid? GoCardless can help
Interested in automating the way you get paid? GoCardless can help

Interested in automating the way you get paid? GoCardless can help

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