Direct Debits are a convenient payment method that facilitates a large proportion of UK transactions. In fact, 1,665 billion Bacs payments were made during Q1 of 2024 with a value of £1,417 billion and Direct Debits accounted for 72% of this total.
With regard to the volume of Direct Debit payments taking place, it will come as no surprise that some of these may fail or be cancelled due to various reasons, including individual customer circumstances.
For businesses, Direct Debit failure can cause cash flow fluctuations and uncertainty in meeting business goals. There may also be an increase in customer service communications, as businesses talk with customers to understand any issues.
The Direct Debit payment procedure is designed to be simple for businesses and customers. To set up a Direct Debit, a customer authorises a business to take funds from their bank account on a set date at regular intervals.
The customer completes a Direct Debit mandate form which contains their bank account details and enables the business to collect payments. Then, the business submits these payment instructions to their payment service provider, ensuring payment amount and due date are included.
On the payment due date, the business account requests funds from the customer’s bank account using an automated service like clearing house system which are then transferred.
As with all financial transactions, there are numerous factors which influence success or failure. People’s individual financial circumstances fluctuate over time and can impact their ability to have sufficient funds available.
Recent data shows that Direct Debit failures have slightly increased over the past few months, with the seasonally adjusted total failure rate rising by 2% in May 2024 when compared with April 2024. This may indicate that there may be issues with customer cash flow or incorrect bank details.
As a result, it’s helpful for businesses to gain insight and support from specialists in order to create a more consistent, fluent and transparent payment system in line with their business goals.
A key benefit of managing payments by Direct Debit is that there is typically a lower rate of failure than with credit card payments. However, any type of payment failure can be disruptive for businesses and cause extra work to get payments back on track.
If a DD fails, you can attempt to collect the payment again, which is called re-presenting. Before this happens, it is useful to find out why the payment didn’t take place. Consulting your ARUDD (Automated Return of Unpaid Direct Debits) report will help you discover the reason code for the failure.
Re-presenting a DD payment should only take place if there is reasonable evidence to suggest the transaction will be successful and can meet the following criteria:
There are two possible methods for reinstatement of DD payment. Firstly, you can request that your customer approve the reinstatement of the DDI or Direct Debit Instruction with their bank.
The customer must do this within two months of the cancellation. Your ADDACS (Automated Direct Debit Amendment and Cancellation Service) report will show ‘R’ if this has occurred.
Secondly, it may prove more convenient for your customer if your business reinstates the Direct Debit. If two months have passed since the cancellation, you will need either a new DDI or the customer's consent to reinstatement letter.
A Direct Debit Service Provider like Interbacs have so much expertise in this regard, if you are not sure about reinstating a DD for your customer, feel free to reach out to our team!
Interbacs’ solutions greatly improve your cash flow. Streamlining your collection process smoothens the customer journey, attracts new customers and protects your brand.
The ability to provide hassle-free regular payment plans for your customers will give you a competitive edge. You can also benefit from an individually tailored DD collection service, responsive processing team, and documentation design that suits your needs. For more information about our Direct Debit services or any of our other products and services, please contact us.