Direct Debit makes recurring payments easy for businesses to set up and work with. But amidst its simplicity are a few things to be aware of.

Here, we highlight seven considerations you may need to make as a business owner before enabling consumers to enjoy your services via regular payments over time.

Best Direct Debit practices

By far the best way of arranging recurring Direct Debit payments is through having a well thought out business plan that necessitates the payment scheme.

Firstly, Direct Debits are great for businesses that offer subscription-based services – they’re easy to set up and have high retention rates thanks to their immunity to credit and debit card expiry dates. It’s also a perfect invoicing tool and adds a unique level of convenience for customers who experience an unparalleled level of ease in making payments.

They are, however, much less useful to businesses that require their transactions to clear immediately – Direct Debit payments can take up to six working days to fully process depending on your payment processor and how the transaction is made. It’s also much less practical as a payment method for high-value goods like cars and currency, due to its accompanying Direct Debit Guarantee, which could make such items a target for fraud.

If you have a premium subscription-based service that could benefit from offering customers a convenient payment option that’s not overly intrusive or time-consuming, then a Direct Debit is ideal for your business.

Getting a Service User Number for your business

Firstly, you’ll need a Service User Number. This is a unique identifier for your business when collecting payment through this method.

The Service User Number is what helps banks find the name of the business that’s transferring money from the payer’s account, and can also be used for reference if a Direct Debit is reversed – in order to make sure the correct organisation is returning the fee back to the customer.

This makes a Service User Number a requirement for businesses using Direct Debit, but companies that haven’t got one can also use the service via a third party number.

Bacs (Bankers’ Automated Clearing Scheme) issues Service User Numbers to businesses, and to get one a company needs to gain sponsorship from one of the UK’s major banks – which can be applied for based on a set of pre-determined requirements based on the financial stability of your business and its managerial competency.

Becoming familiar with Bacs

Bankers’ Automated Clearing Scheme is a UK payment system that’s used to transfer payments directly from one bank account to another. It is through Bacs that you can set up Direct Debits.

When you arrange a new Direct Debit, you will need to do so through Bacs approved software – this is important because it ensures that your transactions are safe and secure.

To do this, you create an ‘input file’ filled with relevant information for the payments you want to set up. Luckily, by using Bacs approved software, much of this process is streamlined and provided you have the required customer details available to you, it’s simple to set up.

You will also receive an ‘Input Report’ that asks the submitter to confirm the receipt of the file and its contents.

Keeping the customer in the loop

It’s important to keep customers abreast of their Direct Debit payments to your company.

You’re required to allow a ten working day notice period unless you’ve agreed prior to a shorter time frame. You must also let the customer know the amount that will be leaving their account and the date that the transaction will occur.

Allowing time for clearance

A key consideration that many business owners fail to take into account is the time it takes for a payment to clear.

Bear in mind that transactions typically take three-to-five days to clear but can take longer. If your business is heavily oriented around subscription-based services that rely on Direct Debit payments, it could have big ramifications on your company’s cash flow.

Remember to allow time for your customers’ payments to clear before including them in your budgets to avoid any unnecessary financial strain.

Cancellations and indemnity

The Direct Debit Guarantee allows customers a level of freedom in their payments. They’re allowed to cancel their transactions at any time by notifying their bank – which means that the onus is on businesses to be flexible enough to cancel a service accordingly.

Customers also have the right to claim a full refund of a payment that’s taken out in error.

As a business owner, you’ll also need to take into account the indemnity claim process that’s allowed by the Direct Debit system. This enables customers to reclaim any money that’s been debited from their account, in any circumstances – provided that their bank agrees with the validity of the claim.

It’s worth remembering that The Direct Debit Guarantee has notably strong rules on refunds and cancellations, which makes providing a luxury Direct Debit service for very high-value goods susceptible to fraudulence.

Changing your Direct Debit pricing

As your business progresses and the quality of your services change, or if you feel the need to modify your pricing in accordance with inflation rates, you can review your pricing structure.

While businesses are allowed to change the price of their Direct Debits, it’s vital that the customer is notified of such changes either in writing or by email with sufficient notice. Failure to provide enough, or any, notice on changes to a Direct Debit gives customers grounds for requesting a refund on their payments.