Understanding Direct Debit Instructions: A comprehensive DDI guide

In this guide, we’ll explore everything you need to know about DDIs, from their purpose and structure to their role in protecting customers and businesses. Whether you’re new to Direct Debits or looking to refine your processes, this article will help you to navigate the ins and outs of DDIs with ease. 

What is a Direct Debit Instruction? 

A Direct Debit Instruction (DDI) is authorisation by a payer to their bank for funds to be withdrawn from their account to pay a Service User (a business, or rarely an individual). A Direct Debit is a form of Bacs payment that can’t be initiated without permission from the payer. It’s therefore important that the instruction is complete, contains accurate information, and complies with Bacs guidelines. 

This process involves several key parties, each playing an important role: 

• Payer:
  

  The individual or business authorising payments to be made from their bank account. The payer provides consent by completing a Direct Debit mandate form, either on paper or electronically, and agreeing to the terms of the Direct Debit Guarantee. 

• Service User:
  

  The business or organisation receiving the funds. Service Users must be authorised to collect Direct Debits by a sponsoring Payment Service Provider (PSP) and assigned a unique Service User Number (SUN). 

• Payment Service Provider (PSP):
  

  This is typically the Service User’s bank or another financial institution that sponsors their ability to collect Direct Debits. Before a Service User can start collecting payments, the PSP must approve their Direct Debit setup, including making sure that their processes are compliant with Bacs rules. 

• Bacs (Bankers' Automated Clearing Services):
  

  The organisation that facilitates the Direct Debit system. Bacs ensures the secure transfer of funds and the processing of all Direct Debit transactions across UK banks and building societies. 

What is a Direct Debit Mandate? 

A Direct Debit Mandate is essentially the same as a Direct Debit Instruction. The two terms are often used interchangeably, which we’ll be doing throughout this guide. In essence, a mandate is the agreement between the payer and the Service User that allows the payer’s bank to withdraw funds on the Service User’s behalf. 

Why is a DDI important for businesses and customers? 

A Direct Debit Instruction benefits both businesses and customers by streamlining payment processes. For businesses, DDIs provide predictable cash flow, reduced administrative costs, and efficient collection of recurring or one-off payments. It also minimises payment failures by automating the process. 

For customers, DDIs ensure convenience and peace of mind. Once set up, they no longer need to worry about remembering payment dates or late fees. Plus, the Direct Debit Guarantee offers additional security, as it promises refunds for any unauthorised or incorrect transactions. 

What should a DDI contain? 

To ensure that it’s accepted, every Direct Debit mandate form must be complete and compliant with Bacs guidelines. As per the guidance provided on the Bacs website, the DDI must hold the following information: 

• The Service User’s name and address 
• Direct Debit logo 
• The Service User Number (SUN) 
• The heading ‘Instruction to your bank or building society to pay by Direct Debit’ 
• The name and full postal address of the bank or building society where the payer’s account is held 
• The name(s) of account holder(s) 
• The payer’s branch sort code 
• The payer’s bank or building society account number 
• The Service User’s reference 
• The payer’s instruction to debit their account, including reference to the Direct Debit safeguards under the Direct Debit Guarantee, signature(s) and date 

The amount paid by Direct Debit can be variable, so it is important that the amount, date and frequency are NOT quoted on the DDI, with the exception being in the service user’s ‘official use box’. 

There are a number of additional rules and guidance notes, which Bacs outlines in its Service User’s Guides and Rules. This documentation includes best practice guidance on the Direct Debit Guarantee, and the design and format of the DDI. To make it easier, Bacs has a range of approved Direct Debit Guarantee templates on its website, and all Access PaySuite customers are advised of the DDI format to use that we know has been successfully approved previously. 

What information should be completed by the payer for the DDI? 

The payer is required to complete the following information on the DDI for it to be successfully lodged with a PSP: 

• Name and full postal address of the bank or building society of account holding branch 
• Name(s) of the account holder(s) 
• The sort code number of account holding branch 
• The account number 
• Date and account holder’s signature 

In addition, a clear instruction must be given to the payer to return the completed DDI to the Service User, who will lodge the DDI with the payer’s account holding branch using one of the following methods. 

The Direct Debit logo 

The Direct Debit logo is a recognisable trustmark reassuring customers that they are signing up for a secure and regulated payment process. It’s mandatory on all Direct Debit mandate forms, as stipulated by Bacs. Businesses displaying this logo signal their compliance with Bacs rules and instil confidence in their customers. 

What is a Direct Debit reference number? 

A Direct Debit reference number is a unique identifier that links a payment to the customer and the Service User. Typically generated by the Service User, this reference appears on the customer’s bank statement and is used to track and manage payments. 

It helps with reconciliation for both businesses and customers. Businesses can quickly identify payments and resolve queries, while customers can easily recognise their payments. A clear Direct Debit reference number also reduces errors and disputes, making it a vital part of the process. 

What is the Direct Debit Guarantee? 

The Direct Debit Guarantee ensures that customers are protected in the event of errors or unauthorised transactions. It’s a cornerstone of the Direct Debit system, offering reassurance to payers while holding businesses accountable. 

Under the guarantee, customers can claim a full and immediate refund from their bank for any incorrect payments. Indemnity claims, which businesses may face if a customer disputes a payment, underline the importance of maintaining accurate records, including properly stored Direct Debit Mandates. This safeguard makes Direct Debit one of the most trusted payment methods available. 

What is the Direct Debit Instruction process? 

To set up a Direct Debit Instruction, you need to follow these steps: 

• The Service User obtains the payer’s authorisation through a Direct Debit mandate form (either paper or electronic) 
• The payer completes the Direct Debit Mandate with all necessary details, including their account information and signature 
• The completed mandate is sent to the payer’s bank via the Service User’s Payment Service Provider (PSP) 
• For electronic mandates, the AUDDIS system processes the submission 
• Once the mandate is active, payments can be collected as authorised 

Types of Direct Debit Instructions 

There are two ways your customers can complete a Direct Debit mandate form: on paper or online. When lodging a DDI with your customer’s Payment Service Provider, you can: 

• Post a completed paper DDI directly to the customer’s PSP 
• Electronically send a copy of a paper DDI 
• Send a paperless Direct Debit Mandate using AUDDIS 

If you use paper DDIs, it’s important to make a copy of the document, so you can store it for future reference. We’ll explore storing Direct Debit Mandates in the next section of this guide. 

Paper Direct Debit Instructions 

Paper DDIs require your customer to complete the form in person. This means that you either need to meet with them in person, or send them a form in the post for them to complete and return to you, which can be time consuming. 

Paperless Direct Debit Instructions 

Paperless Direct Debit instructions enable you to sign up your customers for Direct Debit over the phone, online or in person, offering greater convenience and flexibility. This option requires you to use the Automated Direct Debit Instruction Service (AUDDIS). 

AUDDIS enables you to send new DDIs to your customer’s PSP electronically, instead of in paper format. This offers many benefits, including reduced paperwork, less room for human error in transposing details to another system, a quicker set-up process for your customers and for you, and easier storage. 

What is the typical setup time for a DDI? 

The setup time for a Direct Debit Instruction depends on whether it’s processed manually or electronically. Paper mandates usually take several days to reach the payer’s bank and be verified, while paperless Direct Debit set-ups using AUDDIS can be completed within 1–2 working days. 

If your business is new to Direct Debit, setting up AUDDIS may require additional time, as it involves registration and approval. However, this is a one-time process, and subsequent DDIs will benefit from the faster electronic system. 

Storing Direct Debit Instructions 

Properly storing Direct Debit Instructions isn’t just best practice; it’s a critical requirement for businesses using this payment method. Accurate records ensure compliance with the Direct Debit Guarantee and protect your business in case of disputes or indemnity claims. 

Why is it important to store DDIs? 

Under the Direct Debit Guarantee, your customers can choose to claim money from you at any time, even long after your contract has ended and the Direct Debit payments have stopped. This is known as an ‘indemnity’. If you need to challenge an indemnity claim, you may need the original Direct Debit Mandate as evidence. 

How long should DDIs be stored for? 

There’s no official answer to this. However, it’s wise to retain your DDIs for at least as long as the contract exists between yourself and your customer, whether that’s one year or 50 years. In fact, many companies choose to store their DDIs for longer, since your customer has the right to make a claim for a refund from you at any time. 

Best practices for storing paper Direct Debit Mandates 

If you use paper DDIs, you’ll likely need a large, dedicated space to store them and a robust filing system so you can quickly find the right one, when you need it. For example, you might choose to file your DDIs by date and in alphabetical order, or alphabetically by customer name or reference. As with any paperwork, fire safety measures are important to protect your documents. 

Storing paperless Direct Debit Instructions is much easier, as this doesn’t require any physical space. Instead, you’ll simply need to ensure that you retain the electronic DDI file or an image of it. It’s important to make sure that your digital storage solution is secure, and remember to always keep back-up copies of any Direct Debit mandate forms. 

Make Direct Debit Instructions easy with PaySuite 

Now you know the benefits of Direct Debit Mandates and the process for setting them up, it’s important to make sure you use a service that is reliable and easy to use. 

Access PaySuite’s Direct Debit collection service offers security, flexibility and convenience in collecting one-off and recurring payments from your customers. As part of our suite of essential software solutions for businesses, it’s able to integrate seamlessly with our other tools, as well as your existing payment infrastructure.