How the Direct Debit Guarantee Works and How It Protects Your Business

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When it comes to protecting your business and its assets, it’s best to take as many precautions as you can: solid insurance, contracts and contingencies.

Taking the same approach to your customer payments makes sense. You want to do whatever you can to ensure that you get paid and your cash flow flourishes.

Choosing to accept regular client payments by Direct Debit can help here. It will mean that you’re both protected by the Direct Debit Guarantee and its unique set of safeguards.

Its security levels are unrivalled when compared to other forms of payment, making Direct Debit the safest payment method in the UK.

What is the Direct Debit Guarantee?

direct debit guarantee wordingThe Direct Debit Guarantee wording is as follows:

  • The Guarantee is offered by all banks and building societies that accept instructions to pay Direct Debits
  • If there are any changes to the amount, date or frequency of your Direct Debit the organisation will notify you (normally 10 working days) in advance of your account being debited or as otherwise agreed. If you request the organisation to collect a payment, confirmation of the amount and date will be given to you at the time of the request
  • If an error is made in the payment of your Direct Debit, by the organisation or your bank or building society, you are entitled to a full and immediate refund of the amount paid from your bank or building society
    • If you receive a refund you are not entitled to, you must pay it back when the organisation asks you to
  • You can cancel a Direct Debit at any time by simply contacting your bank or building society. Written confirmation may be required. Please also notify the organisation.

In addition, all organisations using the Direct Debit scheme, including bureaux such as FastPay, go through a careful vetting process before they’re authorised.

They’re closely monitored by the banking industry, and the efficiency and security of Direct Debit is monitored and protected by your own bank or building society.

The Many Faces of Financial Fraud

financial fraudIn practice, just 0.2% of Direct Debit payments are subject to a refund, making it a very rare occurrence. But fraud can and does happen with all types of payment.

Financial fraud levels reached £768.8m in 2016, a 2% increase from 2015, and can affect many different types of payment.

Debit and credit cards details can easily be stolen via online theft or the more traditional method of rummaging through paper recycling bins. Cards can be counterfeited using the stolen information or cloned by skimming data held on the chip or magnetic strip.

In 2016, the value of card fraud stood at £618m, a 9% year-on-year increase and an ongoing battle for consumers and fraud prevention experts.

Cheque fraud can occur if a cheque has been tampered with somehow, in some cases making it impossible for your bank to cash. If it is cashed, it can cause even more headaches. They can be counterfeited, when it’s been made to look like a real cheque or forged, when a genuine, stolen cheque is used with a fake signature.

Figures for 2016 show a 28% drop in cheque fraud to £13.7m but this reflects the declining use of cheques rather than improvements to its security. Statistics from the Cheque and Credit Clearing Company show that they processed 15% fewer cheques in 2016 than in 2015: 344 million compared to 404 million.

Standing Orders can fall victim to mandate fraud, when someone gets you to change your payment details by pretending to be from an organisation you make regular payments to.

Direct Debits aren’t immune to mandate fraud but the protection offered by the Direct Debit Guarantee lessen its effects considerably.

For example, you receive a letter from a company claiming to be responsible for collecting your monthly magazine subscription asking you to sign a new mandate.

When your magazine fails to materialise and you contact the publisher, you realise that you’ve been stung.

If you’d been using a Standing Order, rectifying this error would require protracted dealings with your bank’s fraud team while you arrange to have your money refunded.

If mandate fraud occurs with a Direct Debit, the Guarantee’s protections will kick in and you’ll be refunded swiftly and easily.

How to Reduce the Risk of Fraud

fraud prevention

  • Don’t leave paperwork lying around and dispose of it carefully using a shredder when it’s time for a clear-out
  • Always be suspicious of correspondence via post, phone or email: if in doubt, get in touch with the organisation via the main contact number on their website
  • Always verify changes to financial arrangements with the organisation directly
  • Check your bank statements carefully and report anything suspicious to your bank or building society

How Does the Direct Debit Guarantee work?

Once you’re signed up with a Direct Debit bureau, you can trust them to take care of your submissions and reports: any problems are highly unlikely.

However, here we explain the processes involved if an error does occur and how the wording protects you.

1. Incorrect amounts or dates

Once a Direct Debit Instruction has been set up, either over the phone, online or via a paper mandate, your clients will receive advance warning from you of all payment details such as the when, how much and how often.

It’s always recommended to check these details: remember they can be changed but only if you’ve been informed.

If you notice that a payment has been taken which doesn’t tally with these agreed details, you’re entitled to an immediate refund via the Direct Debit Guarantee.

Your next step would be to contact your bank to request a refund and to ensure that future payment details are correct.

2. Unrecognisable organisation

If a Direct Debit payment is taken and you don’t recognise the name of the organisation on your bank statement, the Guarantee can also help.

For your clients, this confusion won’t happen when you use FastPay as the name of your business, not theirs, will appear on their statements.

However, if it happens with another company you should contact your bank and ask to see a copy of the Direct Debit Instruction. Arranging access could take up to seven days, so in the meantime you’re entitled to a full refund under the Guarantee straightaway so your cash flow isn’t compromised.

If you’re able to confirm that the instruction is genuine, then your bank will re-debit your account. If not, your bank will cancel the instruction and reclaim the refunded amount from the organisation. You won’t ever be out of pocket.

3. Failed Cancellation

If you’ve cancelled a Direct Debit and a further payment has been taken, you’re entitled to an immediate refund.

You should advise clients wishing to cancel that requests need to be directed to their bank who will need at least one day’s notice. You can then inform your bureau of the change of circumstances.

The Process of Making a Claim

what is the direct debit guaranteeIf one of your clients believes an error has been made with their Direct Debit payment, they can request a refund via their bank.

Provided the bank agrees with the validity of their indemnity claim, they will receive the refund immediately. There’s no time limit on when they have to make the claim, giving them more control and flexibility.

Banks generally accept the word of the payer and arrange the refund, then inform your bureau of the transaction.

Your bureau will work hard to minimise the risk of facing an indemnity claim: it is in their best interests and yours to run your scheme smoothly and securely.

They’ll achieve this by implementing any changes to the payment amounts, dates and frequencies that you’ve requested from your clients. Because you’ll have given them proper advance notice, they will then have time to raise any issues or cancel the payment if required.

They’ll also provide excellent customer service with easy-to-access advice and support so that if a client does raise concerns, you and your bureau can work together to resolve them before your customer seeks a refund from their bank.

Your bureau will also respond promptly to cancellation requests as part of their professional, efficient service.

And they will follow the Direct Debit scheme rules precisely to ensure everyone enjoys its benefits to the full.

What is the Direct Debit Guarantee? It’s peace of mind for everyone: an unbeatable payment system to boost your business and keep your clients satisfied.

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