A guest blog by Don Hollingum from Direct Debit 101. For more information visit: www.directdebit101.co.uk

Introduction

As has been highlighted in previous articles Direct Debit has been working for thousands of businesses, both large and small for over 50 years, and its usage continues to grow both in terms of the number of organisations that use it and the number of payments collected – in excess of 4.5 billion payments were collected in 2019.

From a consumer / payer perspective Direct Debit works very effectively as a way of paying both regular and irregular bills, and works in a similar way regardless of which businesses are offering the payment method. For this reason one bad experience can both influence the consumers desire to continue its relationship with the business causing the issue and, more widely, it could make the consumer less likely to want to use Direct Debit for another purpose with another business or businesses.

Put simply simply a error by one business / collecting organisation could damage the image of Direct Debit in the eyes of the affected consumer or consumers to the detriment of all.

Getting and keeping it right

The collecting organisations responsibilities to its Direct Debit customers start with the obtaining of the authority (Direct Debit Instruction) and flows through the collecting of payments, so it is important that the supporting processes and procedures are in place both from the outset and continue throughout the relationship with the customers (payers).

This article provides an overview of the key support or “Housekeeping” responsibilities that a collecting organisation should or must ensure are undertaken, are undertaken accurately, and in a timely fashion. A failure to do so is likely to have an adverse impact on the collecting organisations relationships with its payers as well as potential losses whether these relate to additional internal costs and / or negative impacts on cashflow and age organisations reputation.

Housekeeping activities

Validation and Verification – these two separate elements have been referenced in a previous article and have to be undertaken at the time the payers authority is taken, for the collecting organisation to be in compliance with the Direct Debit Scheme rules. These activities help to ensure that the details captured from the payer are valid, avoiding for example a need to revert to the payer subsequently to get amended information, and help to mitigate the risk of fraud at one of the key stages in the Direct Debit journey.

Direct Debit Instruction (DDI) submission – given that more than 98% of DDIs are submitted electronically this article assumes that collecting organisations are using AUDDIS. When submitting AUDDIS DDIs it is important that the correct transaction code is used (generally a ‘0N’ for a new DDI), and that collecting organisations review their reports subsequently to identify any DDIs that are rejected either within the Bacs process or by the payers PSP. Failure to identify rejected DDIs is likely to mean that subsequent collections will be returned unpaid.

Confirmation of DDI set up – for collecting organisations obtaining DDIs via paperless means, the rules require that a confirmation of the DDI is directed to the payer and through a channel that they are expecting, e.g., via e-mail if that is the agreed channel. Collecting organisations also need to consider data protection issues with regard to the payers account number quoted in the confirmation. Masking of digits within the account number is generally considered advisable providing the payer is still able to recognise the visible elements of the account number that remain

Advance Notice – a key requirement of the Direct Debit process is the provision of advance notice to the payer confirming the amount(s) to be collected and the date(s) of collection. Collecting organisations will be aware that this requirement is detailed in the Direct Debit Guarantee. The advance notice has to be available to the payer in accordance with the time frame detailed in the Guarantee, and, is to be directed to the payer through a channel that they are expecting, e.g., via e-mail if that is the agreed channel. Non-receipt of advance notice or receipt of advance notice containing information that doesn’t correlate with the collected amount(s) and or date(s) could result in the payer rejecting the collection or the subsequent receipt of an indemnity claim.

Payment collections (and the processing calendar) – collected amounts should appear on the payers accounts on, (i.e., not before), or immediately after the date(s) shown in the advance notice. To help with this collecting organisations should review the Bacs processing calendar to identify any non working days that could affect the date the payments are applied to the payers account. Similarly the amount(s) collected should be in accordance with the amount(s) detailed in the advance notice. Any failing in these elements can result in failed payments and or indemnity claims with the consequent negative impact on internal processes. Additionally time and effort is likely to be expended dealing with complaints and queries.

Collecting organisations are also required to use the correct transaction code on each payment collection to avoid problems as the payment is processed. In the interests of brevity the 4 transaction codes have not been detailed here but further information can be found within the Direct Debit Scheme rules.

Messaging advices – In addition to processing DDIs and payment collections the Bacs services provides a secure messaging service. These messages take the form of reports that collecting organisations can download or indeed may automatically be downloaded by the software used by the collecting organisation. We have already mentioned reports associate with DDI submission, and other reports relate to payment collection files submitted by collecting organisations. These reports will identify problems and issues with the files themselves, including for example total values. It is important that the reports are checked as soon as (at least on the same day as) they are available such that issues can be identified and ideally addressed before payers are affected. Even where an issue cannot be resolved before payers are affected, being aware and taking appropriate mitigating actions will help when addressing subsequent complaints and queries

A further form of report is ADDACS (Automated Direct Debit Amendment and Cancellation Service). This report details changes that have been made to DDIs that exist on payers accounts including, as the names suggests, amendments and cancellations. These reports contain one or multiple advices that may have been generated by the Bacs service, by payers PSPs as a response to a customer interaction or by the PSP on its own account. Not only is it important that these reports are reviewed and actioned promptly, the Direct Debit Scheme rules require action should be taken within defined timescales. This article does not attempt to detail a collecting organisations responsibilities under Data Protection provisions, however not actioning advices when the advices on a report indicate that the collecting organisation has incorrect details in its records may be a cause for concern. Similarly continuing to attempt to collect monies by Direct Debit despite being advised that the underlying DDI has been cancelled or amended is likely to result in collection failures leading to cashflow issues and further activities within the collecting organisation.

There are a number of different reason codes associated with an ADDACS advice and appropriate action should be taken for each

Customer communications – whilst the customer (payer) may contact their PSP to amend or cancel an existing DDI, they may alternatively contact the collecting organisation directly. As with ADDACS advices referenced above a collecting organisation should have processes in place to action instructions received directly from their customers in a timely fashion. Continuing to attempt to collect monies by Direct Debit despite being advised that the underlying DDI has been cancelled or amended is likely to result in collection failures leading to cashflow issues and further activities within the collecting organisation.

Unpaid advices – details of payment failures are also made available to collecting organisations in the form of reports. The amounts detailed in the reports will reflect the amounts (re)debited to the collecting organisations bank account. There are a number of actions that the collecting organisation can undertake when notified of a payment failure, e.g., represent the payment collection within permissible timeframes (under advice) and/or communicate directly with the payer to agree what action to take. In some cases the unpaid reason code may indicate the most appropriate course of action but an effective process undertaken in a timely fashion on receipt of unpaid advices is more likely to lead to a faster resolution

Indemnity Claims – will, when they occur, be received some time after a successful payment collection or collections. Details of indemnity claims are detailed on messaging reports available to collecting organisations. Whilst some indemnity claims may be received from PSPs at the request of the collecting organisation themselves, others will arise because the payer has sought a refund under the Guarantee. Timely action is called for on the part of collecting organisation particularly where they may wish to investigate and/or challenge the validity of the indemnity claim itself because there is a prescribed window during which a challenge can be submitted.

As with other reports each advice on the report contains a reason code and this reason code will help to explain why the indemnity claim has been raised. Investigation of the reason may require the collecting organisation to review its records or contact the payer directly and effective processes are paramount. A collecting organisation with slick processes is more likely effect a timely resolution.

Conclusion

This article covers some of the key areas that collecting organisations should be mindful of and have processes in place to handle. Further information on these and other areas can be found in the Scheme rules document, i.e., The Service Users Guide & Rules to the Direct Debit Scheme available from within the password protected area of the Bacs website.

However, we would welcome the opportunity to engage with you directly on any aspects within this article, please email us at DirectDebit101@northeypoint.co.uk, visit us at www.directdebit101.co.uk.