What Happens if Direct debit Fails

Direct Debit has become a way of life for many customers and the businesses that use them to keep payments consistent. Without a doubt, Direct Debit payments are a convenient way to pay for goods and services.

In the twelve months to September 2024, there were £1,471,260 in Direct Debit payments in the UK. This was up by 4% on the previous year’s results, illustrating an increasing engagement with Direct Debit payment services by organisations and customers. 

Most people don’t think about what happens if Direct Debit fails or even how Direct Debits actually work. Businesses may need to know how to start collecting Direct Debit payments before they feel confident in implementing a Direct Debit collection service for customers. 

Here we explore everything you need to know around what happens if Direct Debit fails and how to deal with this situation if it happens to your business. 

Contents

• Why might a Direct Debit fail?
• What happens if Direct Debit fails?
• How to resolve a Direct Debit failure.
• Proactive Direct Debit services with Interbacs. 
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Why might a Direct Debit fail?

No payment system has a one hundred percent success rate at collection and payment completion. This is equally true of Direct Debit payments, with a 1% increase in Direct Debit payments in August 2024, compared to July 2024. 

There are a number of reasons for this data, including the fact that mortgage and water rates may have played a part. However, taken year on year, Direct Debit is proven to be one of the most reliable forms of payment collection available in the UK. 

Direct Debits can fail due to numerous factors, such as:

• The customer’s account has been closed or isn’t recognised.
• The payer is now deceased.
• There isn’t an official Direct Debit mandate in place.
• The payer has disputed the payment.
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What happens if Direct Debit fails?

If one of your Direct Debit fails, you’ll receive a notification with your ARUDD (Automated Return of Unpaid Direct Debit) report. ARUDD is the automated system used by the banks to return unpaid Direct Debit payments.

Your bank’s automated system will generate an ARUDD report the day after a payment is due if it hasn’t been taken from the customer’s account. The ARUDD report is available on the Bacs Payment Services website or through Bacs approved software. 

In your ARUDD report, a failed Direct Debit payment will be assigned one of 12 reason codes. The two most common are:

Refer to payer: 0

This often means that the payer doesn’t have sufficient funds in their account to pay the Direct Debit. It may help to ensure that the customer has enough notice to confirm the payment amount is available in their account for the agreed date. Allowing customers to choose the best date for their payment can help to avoid failure. 

Instruction cancelled: 1

If a customer cancels your Direct Debit with their bank, then you should receive an ADDACS report. This tells you about any cancellations that have occurred. It’s vital to check ADDACS reports regularly to make sure that you don’t take a payment after it has been cancelled by the customer. 

How to resolve a Direct Debit failure

When a Direct Debit fails, a business can try and collect the payment again. This is called re-presenting, but it’s important that organisations work out the reasons behind the primary failure first before taking this action. 

If a situation hasn’t been resolved, such as incorrect account details or insufficient available funds, then the payment won’t be successful when re-presentation occurs. The ARUDD report code should give an indication of the issues behind payment failure, so this is a good place to start for a positive resolution. 

It’s advisable to only re-present a Direct Debit payment if there is a good chance it will be successful, as it can be time and cost inefficient if it fails again. 

There are some regulations around re-presentation of Direct Debits, including:

1. It has to be labelled with an ‘18’ transaction code. 
2. The amount in the re-presentation has to match the original Direct Debit payment collection amount. 
3. The re-presented Direct Debit must be made within 30 days of the original presentation.

One of the most proactive ways to avoid Direct Debit failure is to keep a close eye on all available Direct Debit reports that relate to your business transactions. This can help you to keep track of any patterns and flag up any potential concerns ahead of time so that you can reduce failure as much as possible. 

Proactive Direct Debit services with Interbacs

Closely monitoring Direct Debit payments and analysing related data can be time consuming. Having a professional team of experts managing payment streams reduces stress and creates more time for business leaders. 

Here at Interbacs, our experienced Direct Debit facilities management team can take care of all the administration and management related to your Direct Debit payments. As part of the package, you gain a dedicated Bacs processing team and your very own account manager to support through every step of the process.

We can help with any questions you may have about Direct Debits, such as: do banks charge for collecting Direct Debits? Or can you collect Direct Debits on weekends?

Having an integrated and efficient payment collection process helps create a smoother customer experience, increases the consistency of your finances and helps you attract more customers based on your brand’s reputation. Plus, you can enjoy the freedom of an automated system that reduces error and boosts productivity. 

With a proven track record in successful Direct Debit management for all types and sizes of businesses and with a compelling industry reputation, Interbacs are well positioned to support all of your business account needs.

Ready to make the switch? Contact Interbacs today for a personalised consultation and discover how we can optimise your direct debit processes.