Last editedJan 20222 min read
If your business operates on a monthly billing or subscription model, it’s likely that direct debits are a key part of your operations. Direct debits are advantageous for both businesses and their customers. They are more cost-effective for businesses than card payments and offer convenience and flexibility for consumers. What’s more, transaction failure rates are significantly lower than credit or debit card payments.
Nonetheless, there are times when something goes awry with a direct debit payment. When a payer notices that something has gone awry with a direct debit, they are able to make a direct debit indemnity claim to recover any funds that have been erroneously paid. While the protection that they provide for consumers is important, indemnity claims can be frustrating for businesses unaccustomed to dealing with them.
Here we’ll look at everything businesses and their customers need to know about indemnity claims.
What is a direct debit indemnity claim?
Under the Direct Debit Guarantee, consumers can claim an immediate refund of any money paid by direct debit if they believe a collection error has been made. A direct debit indemnity claim can be made for a variety of reasons. The most common include:
● The amount of the transaction differs from the advance notice
● The date of the transaction differs from the advance notice
● The payer did not receive prenotification of the debit
● The advanced notice is disputed
● The paying bank has been given the wrong account number or type
● Payment is taken more than 3 working days after the due date.
How does an indemnity claim work?
Understanding how indemnity claims work is important so that service users (payees) know how and when to respond when an indemnity claim is made.
The indemnity claim procedure is as follows:
● Payer notices that something is wrong with a direct debit
● The payer contacts their bank, requesting that the matter be investigated as per the Direct Debit Guarantee
● The paying bank checks that the reason for the indemnity claim is valid
● If the reason is found to be valid, the bank immediately refunds the disputed payment in full
● The bank then raises an indemnity claim against the service user, informing them via a Direct Debit Indemnity Claim Advice (DDICA) report.
How long does a direct debit indemnity claim take?
Indemnity claims are usually collected within 14 days. The service user has 9 days in which to dispute the claim. If, after 14 days, the paying bank has not heard from the service user (or if a claim challenge has been unsuccessful), it will reclaim the amount refunded to the payer from the service user.
This is why it is important to challenge an indemnity claim if you have evidence to suggest that you have not acted in error.
Can payees challenge an indemnity claim?
Sometimes direct debit issues are caused by the payer’s bank or Payment Service Provider (PSP) rather than the service user. When the service user receives their DDICA report, they have 9 days in which to challenge the claim. However, they need to be able to provide evidence that the payment was extracted in accordance with the advance notice, and that the fault lies outside of your actions.
The indemnity claims process is robust enough to make fraudulent claims extremely rare. Indeed, indemnity claims themselves are very uncommon and rarely cause significant problems to businesses. However, they do not affect the agreement between the service user and the payer, so payment from the customer can still be pursued.
We can help
If you’re interested in finding out more about direct debits and indemnity claims, then get in touch with our financial experts. Discover how GoCardless can help you with ad hoc payments or recurring payments.