A guest blog by Don Hollingum from Direct Debit 101 – visit: www.directdebit101.co.uk
Direct Debit has been working for thousands of organisations, 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.
Most organisations and payers recognise that Direct Debit is a very effective mechanism for collecting a series of payments that fall due over time, for example monthly mortgage payments, insurance premiums and council tax.
Direct Debit also works well for payments that fall due less regularly, such as quarterly bills and annual subscriptions but what about those infrequent or irregular amounts?
Direct Debit Instructions (authorities to collect payments)
A Direct Debit Instruction (DDI) is an authority from a payer to their payment services provider (PSP) to pay Direct Debit amounts collected by the organisation named on the DDI. The point being that the DDI does not specify amounts to be collected nor does it specify a timeframe for any amounts to be collected.
This being the case an organisation can obtain a DDI from a payer but not collect regular or indeed any amounts from the payers account. So by way of example, a credit card issuer may obtain a DDI from a customer issued with a card, and the agreement may be that the DDI is used to repay the balance in full when it falls due or meet any required minimum repayment. Obviously no payment will be collected until after the card is used which may not be for a number of months.
Similarly a charity may obtain a DDI from a donor who doesn’t want to donate regular, e.g., monthly, contributions, but may want to make a contribution to specific appeals at a point in the future.
The above are two examples of uses for Direct Debit involving irregular payment collections but doubtless organisations will be able to identify many other scenarios from within their own customer propositions.
DDIs and dormancy
We have already outlined what a DDI is but what isn’t it?
In the context of this article it is NOT an unlimited authority from a time perspective, i.e., it has a lifespan. To help to ensure that a DDI remains ‘relevant’, and to avoid for example an amount being collected in error at some unspecified time in the future, safeguards are built in.
Each organisation authorised by a Bacs participant to collect monies by Direct Debit is allocated a 6 digit service user number (an organisation can have more than one such number) which is used to identify that organisation by users of the Direct Debit Scheme.
The Bacs participant will set a dormancy period against the service user number which means that any DDIs that have not been collected against after the elapsed period of time as denoted in the dormancy period will be deleted by the payers PSP from their system and any subsequent payment collections received will be returned unpaid.
The default dormancy period is 13 months although the organisations Bacs sponsor MAY agree to extend the dormancy period for a given service user number on request although this tends to rarely happen.
Dormancy could have a negative impact on an organisations ability to collect irregular Direct Debit payments, i.e., if a payment has not been collected with the dormancy period for that organisations service user number.
Any organisation that collects Direct Debits should be aware of the dormancy period applicable to their service user number(s) and ensure, before submitting a Direct Debit collection for payment, that a valid DDI is in place, i.e., that the DDI in question has not been cancelled and that a collection has been last made within the dormancy period, i.e., less than 13 months since the previous collection. In the absence of a previous collection look to the date the DDI was set up.
Remember; it is not the responsibility of the payer to ensure that a DDI they have signed is still validly in place on their account. Similarly the payer should not be ‘penalised’ in any way as a result of a failed payment collection arising from the DDI being invalid/deleted due to dormancy.
In the event that an organisation identifies that a particular DDI or DDIs have become invalid, i.e., where the dormancy period has elapsed, they will need to obtain a new DDI from the payer(s) involved, this will be either a paper authority signed by the payer or a paperless one where the organisation is authorised to obtain DDIs in this way.
In an effort to support organisations in the light of the Covid 19 pandemic Bacs recently announced that they had unilaterally extended the dormancy period against service user numbers, which will doubtless be of assistance to those organisations who have not collected over recent months and may have identified that the dormancy issue may be applicable to them.
Organisations should understand the implications for them of this change by Bacs and monitor to identify when and if the change is reversed.
Direct Debit can be used very effectively in a number of different scenarios, to collect amounts regularly, to collect single payments, and/or to collect irregular amounts, all of which are of course subject to the Direct Debit Scheme rules.
Organisations using Direct Debit are in control of what and when they collect payments and assume roles and responsibilities as part of the process, one of these responsibilities relates to dormancy.