How to set up a Direct Debit for my customers

Setting up Direct Debit payments gives you security in your accounts receivables and reduces the impact of late payments. As well as saving the time, stress and awkward conversations associated with chasing invoices, the convenience and reliability of Direct Debit payments helps to improve cash flow. 

In this guide, we’re going to explain the process of how to set up a Direct Debit for your business, as well as outlining the benefits and potential drawbacks of this type of payment. 

 

A quick guide to Direct Debit for business 

Direct Debit is a highly efficient payment method for businesses. Whether you’re a small company wondering how to set up a Direct Debit for my customers or a larger business looking to make sure you’re following best practices, there are a lot of benefits to the system. However, there’s also a lot to learn. Let’s explore the basics of how to set up Direct Debit for your business. 

 

Types of Direct Debits 

There are several different types of Direct Debits that your business can use, making it an extremely versatile option for your business, as well as your customers and service users. 

The main types of Direct Debits are: 

• Fixed amount Direct Debits:

  Payment amounts remain the same each time, making them ideal for subscriptions or consistent charges. 

• Variable amount Direct Debits:

  Payment amounts vary, offering flexibility for businesses charging based on usage or fluctuating costs. 

• Recurring Direct Debits:

  Payments are taken at regular intervals, such as monthly or annually, and are typically used for memberships or ongoing services. 

• One-time Direct Debits:

  A single payment is collected via Direct Debit, which is useful for large or one-off transactions. 

 

Key terminology 

Understanding the terminology is crucial when learning how to set up Direct Debit for your business. We’ve put together a quick introduction to the terms you need to know, and linked to some of our other articles so you can explore them in more detail. 

• Direct Debit Instruction (DDI):

  This is the payer’s authorisation to withdraw funds from their account. It’s also known as a Direct Debit Mandate. 

• Direct Debit Originator:

  A business or entity authorised to collect payments via Direct Debit. It’s also known as a direct submitter.

• Service User Number (SUN):

  A unique identifier that allows a business to collect payments through the Direct Debit Scheme. 

• Bacs Payment Scheme:

  The organisation responsible for processing Direct Debit payments in the UK. 

• Direct Debit bureau:

  A third-party service provider that manages the submission of Direct Debit payments to Bacs. Businesses using this option are referred to as indirect submitters. 

 

What do you need to set up a Direct Debit? 

To set up a Direct Debit for your business, you’ll need the following: 

• A Service User Number (SUN) 
• Direct Debit Instruction (DDI) forms 
• Bacs-approved software to submit payment requests 
• Bank sponsorship to access the Direct Debit Scheme 
• A secure customer database 
• Compliance with Bacs and Direct Debit rules 
• Training for staff 
• Access to a Direct Debit bureau (optional) 

 

How to manage Direct Debits: A comparison of the options 

If you’re looking to offer Direct Debit payments to your customers, you need to have access to the Direct Debit Scheme, which is owned and operated by Pay.UK. 

There are two ways to get set up on the Direct Debit Scheme: Either managing it yourself or engaging a third-party Direct Debit bureau to manage it for you. Let’s compare these two options. 

 

Managing Direct Debits in house 

This is usually for larger organisations who want to manage their own Direct Debit collections themselves, also known as becoming a Direct Debit originator or direct submitter. Being a Direct Debit originator means that your business has been authorised to submit payments to Bacs by being sponsored by a bank. There’s no need for any third-party provider; you can manage the entire process yourself. 

The first step is to obtain a Service User Number (SUN) from your bank. This involves completing a series of forms that the bank evaluates to decide if your business is eligible for the Direct Debit Scheme. It can take a few weeks for your bank to approve you. 

You then need specific Bacs software to make the Direct Debit payments, as well as in-house training so your team knows the correct information to provide to Bacs. These steps will help you to ensure you make payments accurately, on time, and in compliance with Bacs regulations. 

Pros of in-house management: 

• Full control over payment processes 
• Customisable payment workflows 
• Potential long-term cost savings 

Cons of in-house management: 

• High initial infrastructure investment 
• Complex compliance requirements 
• Significant administrative overheads 

 

Using a Direct Debit provider or Bacs bureau 

A Direct Debit bureau looks after the submissions of your Direct Debit payments to Bacs, either using your own SUN or using the bureau’s SUN. This is called being an indirect submitter. Some bureaus, like Access PaySuite, enable you to collect Direct Debits over the phone, on paper and online, giving your customers a choice on how to pay.  

Bureaus help to remove time-consuming manual steps and take care of complex compliance requirements, streamlining the process of setting up a Direct Debit . They make the submissions to Bacs on your behalf, ensuring that all payments are collected and submitted without you needing to be involved. You can also use their software to run reports for completed, failed and cancelled transactions. 

There are two options for managing your Direct Debits via a bureau: 

Using the bureau’s SUN: Direct Debit payments can be set up quickly but are less easily traceable to your organisation. 

Your own assigned SUN: This means that your name will show up on your customer bank statements, reducing any unnecessary cancellations. 

Pros of using a Direct Debit bureau: 

• Quick setup 
• Reduced compliance complexity 
• Scalable solutions 
• Lower upfront costs 

Cons of using a Direct Debit bureau: 

• Per-transaction fees 
• Less direct control 
• Dependency on a third-party provider 

 

Becoming a Direct Debit originator 

To become a Direct Debit originator, you’ll need to contact your bank to obtain a Service User Number (SUN). Each bank has its own requirements and application process, so you’ll need to speak to your bank’s Bacs team for advice on the steps you need to follow. While there’s no fixed process, you’ll be required to provide details about your business bank accounts, financial standing and other key information about the payments you’ll be processing. 

It’s also worth bearing in mind that most banks have a minimum turnover requirement, which is typically upward of £1 million, and minimum transaction volumes of around 400 Direct Debits, so not all businesses are eligible for this payment service. Some high-risk businesses may also find it more difficult to gain sponsorship from their bank. 

For more information on this process, check out our detailed guide to becoming a Direct Debit originator. 

 

Additional considerations when setting up Direct Debit for business 

Even if you’re eligible for a SUN, it’s important to bear in mind that there are additional requirements that you’ll need to make sure you can handle Direct Debit payments. These considerations include: 

• Implementing suitable software for submitting Direct Debit payments 
• Ensuring that you have adequate resources in place to manage Direct Debits 
• Delivering Bacs-accredited training to your team 

If you choose to appoint a Direct Debit bureau to manage payments on your behalf, you may still choose to set up your own SUN. However, you can simplify the process even further by using the bureau’s SUN. 

 

How to set up a Direct Debit for your business 

Once you’ve decided which is better for your business and undertaken the necessary steps to get authorised for taking Direct Debits, it’s a relatively simple process to start collecting payments. 

Let’s take a look at a quick overview before detailing the individual steps of the process. 

1. Obtain a Direct Debit Instruction (DDI) from your customer 
2. Submit the DDI to Bacs for approval 
3. Give notice to customers before taking payment 
4. Start taking payments as detailed in the DDI 
5. Let’s break these steps down further. 

 

Customer authorisation process 

The first step in setting up a Direct Debit is obtaining a Direct Debit Instruction (DDI) from your customer. Also known as a Direct Debit Mandate, this serves as the customer’s authorisation for you to collect payments directly from their bank account. The process for collecting this can vary: 

• Online authorisation methods:

  Many businesses prefer paperless sign-ups through secure online forms. Customers can enter their details, review the terms and authorise payments in just a few clicks. This method is quick, convenient and minimises paperwork. 

• In-person mandate collection:

  For face-to-face interactions, you can provide physical forms for customers to complete. This method is ideal for businesses that operate in retail environments or service-based sectors where transactions happen in person. 

• Telephone sign-up procedures:

  For businesses offering phone-based services, mandates can be collected over the phone. Customers provide their details verbally, and you record their authorisation according to Direct Debit regulations. 

Regardless of the method, it’s essential to ensure that the customer understands the terms of the DDI, including the payment schedule and the Direct Debit Guarantee, which protects their rights. 

 

Lodging the Direct Debit Instruction 

Once you’ve collected the DDI, it must be submitted to Bacs for approval. Here’s how the process works: 

1. Submission to Bacs:

   Either you or your Direct Debit bureau submits the DDI electronically to Bacs. If you’re using a bureau, they may handle this step on your behalf. 

2. Approval time:

   It typically takes up to 10 working days for Bacs to process and approve the DDI. This timeframe allows banks to validate the instruction and ensure that everything is in order. 

3. Confirmation:

   Once the DDI is approved, you’ll receive confirmation that you can begin taking payments as per the agreed terms with the customer. 

Submitting DDIs promptly and accurately is crucial to avoid delays or rejections that could impact your cash flow. 

 

Taking payments 

After the DDI is approved, you can start collecting payments. However, per Bacs guidelines, you must always give advanced notice to payers before taking any funds. Here are the steps for taking payments: 

1. Give advanced notice to customers:

   Before taking any payment, you must provide customers with advanced notice of the amount, payment date and frequency of the payment. This notice is typically sent 10 working days before the first payment. Providing notice is a compliance requirement under the Direct Debit Collection Rules. 

2. Collect payments as scheduled:

   Payments can then be taken directly from the customer’s bank account on the agreed dates. Ensure that you adhere to the terms outlined in the DDI and avoid unauthorised or incorrect collections, as this could lead to disputes. 

By following these steps, your business can ensure a smooth, compliant process for collecting payments via Direct Debit. This method not only simplifies payment collection but also strengthens customer relationships through clear communication and delivery of a reliable service. 

 

How long does a Direct Debit take to set up? 

The time it takes to set up a Direct Debit depends on your business processes and your chosen method of access to the Direct Debit Scheme. If you’re using a Bacs bureau, the process is often quicker, with setup times typically ranging from a few days to a week. This is because the bureau handles much of the administrative work, including submitting Direct Debit Instructions (DDIs) and managing approvals on your behalf. 

For direct submitters using their own SUN, the process can take several weeks. This includes the time required to apply for a SUN, undergo bank approval, and implement the necessary software and training to manage Direct Debit collections independently. Factors such as your business size, financial history and the bank’s specific requirements can also influence the timeline. 

Once the setup is complete, the actual process of collecting payments via Direct Debit typically takes 3-5 working days from the submission of a payment request to receiving the funds. 

 

Best practices for setting up a Direct Debit 

Like any other form of payment, there are many important requirements and regulations to bear in mind when you set up a Direct Debit. As well as helping your business to meet its compliance requirements, following best practices for Direct Debits allows you to increase customer satisfaction and minimise disruptions in payment collection. 

Here are some important considerations to bear in mind to ensure best practice. 

 

Transparent communication with customers 

Clear communication builds trust and reduces payment cancellations. Make sure you inform customers about how the Direct Debit process works, the benefits they’ll gain, and what to expect. Proactively address any questions or concerns, ensuring that customers feel confident and secure in authorising recurring payments. Remember as well to give them advanced notice before taking any funds. 

 

Clear mandate documentation 

Ensure that your Direct Debit Mandates are accurate and compliant with regulatory standards. Any errors or missing information can lead to delays or rejections, so it’s crucial to double-check details like payment amounts, frequency, and customer banking information. Clear documentation ensures smoother processing and demonstrates professionalism. 

 

Secure data handling 

Protecting customer data is critical for maintaining trust and complying with GDPR and payment regulations. Implement robust encryption, secure servers and restricted access controls to protect sensitive information. Make sure to regularly review and update security protocols to prevent data breaches and safeguard your customers’ financial information. 

 

Regular payment reconciliation 

Monitor transactions consistently to ensure that payments are processed accurately and on time. Regular reconciliation helps you identify discrepancies, such as failed payments or duplicate charges, and resolve them promptly. Maintaining accurate records also simplifies financial reporting and auditing, and streamlines processes in the event of a payment dispute or Direct Debit indemnity claim. 

 

Benefits of Direct Debit for businesses 

Direct Debit offers numerous advantages that help businesses to improve efficiency and build stronger customer relationships. By automating payment collection, businesses can save time and money while fostering customer loyalty. Let’s explore these benefits in more detail. 

 

Cost-effectiveness 

Direct Debit reduces transaction fees compared to card payments or other payment methods. It’s a particularly budget-friendly option for businesses processing large volumes of payments, allowing you to allocate your financial resources to other areas of growth. 

 

Improved cash flow predictability 

With recurring payments, businesses can forecast revenue more accurately. This predictability makes it easier to plan for expenses, allocate budgets and maintain financial stability, even during fluctuating market conditions. 

 

Reduced payment friction 

The convenience of Direct Debit increases the likelihood of on-time payments, as customers don’t need to take action each time a payment is due. This automation minimises delays and helps to maintain a steady cash flow. 

 

Enhanced customer retention 

Automated payments encourage long-term customer relationships by providing a hassle-free payment experience. Customers appreciate the ease and reliability of Direct Debit, which can lead to greater loyalty and satisfaction. 

 

Lower administrative costs 

Direct Debit minimises the need for manual intervention in billing processes. Automated payment collections free up staff time, reduce errors and streamline administrative tasks, allowing your team to focus on more strategic priorities. 

 

How to solve common Direct Debit issues 

While Direct Debit is a reliable payment method, occasional issues may arise from time to time. Here are some common issues along with actionable insights to address them effectively and maintain smooth operations. 

 

Restarting a cancelled Direct Debit 

If a Direct Debit has been cancelled, you’ll need to request a new DDI from the customer and update your records promptly. Make sure the customer understands why the mandate needs to be reissued and confirm that they’re aware of any upcoming payments to avoid disruptions or disputes. 

 

Changing Direct Debit frequencies 

When adjusting payment schedules, communicate changes clearly and obtain customer approval before making modifications. Transparency helps to prevent misunderstandings and ensures that the customer is fully informed about their updated payment terms. 

 

Handling payment failures 

Investigate failed transactions promptly to identify the cause, such as insufficient funds or incorrect account details. Notify customers immediately about the failure, provide guidance on resolving the issue, and attempt to resubmit the payment if possible. 

 

Customer communication strategies 

Proactive communication is key to managing customer expectations. Keep customers informed about payment schedules, upcoming changes or failed transactions. Use clear, professional language and provide multiple channels for customers to reach out with questions or concerns. 

 

Make setting up a Direct Debit and managing recurring payments easy with Access PaySuite 

Using Direct Debit collections is a quick and cost-effective method for businesses exploring how to set up Direct Debit payments for their customers. As well as streamlining the payment process and allowing you to deliver a more reliable customer service, Direct Debits can also help with your cashflow and forecasting. 

Thanks to the regulations around Direct Debits, such as the Direct Debit Guarantee, it’s a trusted method of payment, with 9 out of 10 consumers having at least one Direct Debit payment a month. Offering this secure option allows you to encourage more sales and develop a stronger bond of trust with your customers. 

If you have any questions about how to set up a Direct Debit, please email us at [email protected] or get in touch with us online and one of our experts will be happy to advise you. Alternatively, you can book a free demo to see for yourself how easy it is to set up Direct Debit for business.