Part of the Bacs scheme, Direct Debit is one of the most efficient, manageable and cost-effective methods an organisation can use to collect regular (or one-off) payments from customers.
A Direct Debit Instruction (DDI) gives businesses the ability to collect funds from their customer’s bank accounts. Providing their customer is notified of the amount and date prior to the sum being deducted.
To start receiving funds, organisations first need to become a Direct Debit Service User and obtain sponsorship from their bank. This is widely known in the industry as a Service User Number (SUN) or Originator ID.
Each Bank’s sponsorship criteria is different. Usually, you can obtain application forms from your Relationship Manager.
Banks need to sponsor business customers to use Direct Debit due to liability they must take as part of the Direct Debit Guarantee. Which safeguards consumer rights under the scheme.
On becoming a Service User, businesses can start collecting funds via Direct Debit and take advantage of the benefits it offers.
Benefits of Direct Debit
- Cost Savings – Lowers cost of reconciliation, cheaper than cheques, safer than cash. Collection is done through Bacs, meaning businesses can avoid the UK’s expensive card network.
- Cash flow control – As companies pull funds from their customers, they can forecast cash flow because they are aware in advance of funds that will be credited in to their bank account, and – most importantly – when!
- Easy set-up – Once a DDI is completed and lodged, organisations can begin collecting funds from customer accounts within a few days.
- Customer retention – Once a DDI is set up, the customer has nothing else to do. So customers often find it easier to continue paying by Direct Debit and are less likely to look for other options.
- Competitive advantage – Common to incentivize customers to set up direct debits with discounts and options to spread costs
- Reliability – Reports are sent from Bacs each time payments are collected, showing funds collected and those rejected.
- Typical payments – Regular, recurring or one-off payments such as; utility bills, membership payments, telephone bills, insurance payments and council tax.
Historically the ability to collect Direct Debits was seen as the preserve of the large corporate. Today, organisations big & small can do so with ease thanks to the advent of Direct Debit Software.