Exploring the Advantages of Direct Debit Payments
Direct Debit is a payment method that offers numerous benefits to businesses, ensuring a seamless and convenient way to receive payments. In this article, we will delve into the inner workings of the Direct Debit process, shedding light on what happens both for the business and its customers, and uncovering the behind-the-scenes mechanisms.
The first step in implementing a Direct Debit payment system is to contact your bank. Your bank will conduct checks to ascertain whether you meet the necessary criteria for accepting payments through Direct Debit. Additionally, you will receive comprehensive information regarding the rules and regulations of the Direct Debit scheme. It’s essential to be well-versed in these rules, as the scheme provides the Direct Debit Guarantee to customers, which is stringently enforced.
In-House or Outsourced?
A critical decision to make is whether to handle Direct Debit payments directly or through an intermediary. Here are your options:
In-House: For larger and well-established companies, setting up a Direct Debit payment system in-house is possible. This entails applying for and establishing a merchant account, often referred to as a ‘Service User Number’ (SUN), through your bank. Additionally, you’ll need to procure approved software to ensure adherence to security and data standards.
Outsourced: An alternative is to employ a Direct Debit ‘bureau’ that will manage Direct Debit payments on your behalf in exchange for a commission. This may involve the bureau setting up a SUN for your business or utilising their own. Many Direct Debit payment management software options are available, and numerous of them can seamlessly integrate with your other financial systems, offering clear advantages.
Customers can authorise Direct Debit payments by completing a mandate that includes their bank account details. This authorisation can be offered through paper forms, electronic means, or a combination of both. Once obtained, this mandate provides the necessary authorisation to initiate payments from the customer’s bank account. It’s important to note that any changes to the payment amount, frequency, or date must be communicated to customers in advance.
The Behind-the-Scenes Process
Direct Debit payments are processed through Bacs, which is a well-established payment system. Here’s a breakdown of the process behind the scenes:
Day 1: You or your payment processor sends payment files to Bacs between 7 a.m. and 10.30 p.m., initiating the processing cycle.
Day 2: On the second day, the files are forwarded to the receiving bank for payment processing.
Day 3: Payments are simultaneously deducted from the customer’s account and credited to your receiving account, all on the third day.
This efficient three-day cycle ensures the smooth transfer of funds between accounts. It’s a well-organised process that minimises disruptions and offers convenience for both businesses and customers.
In summary, Direct Debit is a payment method that streamlines financial transactions for businesses and customers alike. Whether you choose to manage it in-house or utilise a bureau, understanding the process and its benefits can significantly enhance your financial operations. With Direct Debit, you can provide your customers with a hassle-free payment experience while efficiently managing your revenue collection.
Need Help with Your Payments?
At FastPay, we help a multitude of businesses and organisations take care of their payments. From our Direct Debit Managed service and Powerful Integrations to the FastPay Direct Debit Bureau, we’re committed to providing a payment solution tailored to our client’s needs.