An indemnity claim is something that any business that makes use of direct debits has to be aware of and has to take steps to prevent as far as is possible. In simple terms, an indemnity claim occurs as a result of the Direct Debit Guarantee. This guarantee includes a clause that states that if any error is made in the payment of the direct debit by the organisation collecting the money – a merchant in this case – or by the bank or building society used by the merchant to facilitate the direct debit, then the payer will be entitled to a full and instant refund of monies paid from their payment service provider (PSP).
This is called an “indemnity” – there is no limit on the amount of time that has passed since the payment was taken or by the amount. In simple terms, if a payer asks for a refund and it can be shown that a mistake was made then the paying PSP will issue the refund automatically within 14 working days.
Possible reasons for a direct debit indemnity claim
A client may make an indemnity claim seeking a refund if they think the wrong customer has been debited, or if there were problems with the advance notice given.
Can merchants challenge an indemnity claim?
It is possible for merchants to challenge an indemnity claim if they feel that an error wasn’t in fact made with the direct debit. It is recommended that, for each client, the merchant keeps a legally certified copy of all relevant data and any correspondence. With this information to hand the merchant will be in a position to provide evidence countering any claim that a mistake was made with the direct debit.
How to minimise the chance of an indemnity claim
Although indemnity claims can theoretically be challenged, there are some cases in which a claim is perfectly valid and no challenge can be made, meaning the refund has to be paid. It is therefore wise for merchants to take as many steps as possible to minimise the risk of indemnity claims being made. The following simple steps will help to keep the number of claims down:
Make it easier for customers to get in touch with you. If a customer can contact you quickly in order to query a payment or raise a concern then there is every chance that any problems that have actually occurred can be handled without an indemnity claim having to be made. Make sure that contact is as straightforward as possible by ensuring that the details needed are always kept completely up to date. You should also ensure that the points of contact – such as phone numbers and email addresses – are checked throughout any opening hours so that any problems that arise can be nipped in the bud.
Gather your evidence. If a claim has been made and you think you have a right to challenge that claim or launch a counterclaim, then your case will be greatly helped if you can gather and present the information that you feel demonstrates that the indemnity claim isn’t valid. This evidence could include correspondence from the client in the form of letters, contracts, emails, phone calls and so on. Being able to pull up such details quickly in the case of a complaint being received will make it easy to ascertain whether the claim is actually valid or not.
We Can Help
If you’re interested in finding out more about indemnity claims, or any other aspect of your business finances, then get in touch with our financial experts at GoCardless. Find out how GoCardless can help you with ad hoc payments or recurring payments.