Fast, automated, reliable Direct Debit collections

Imagine you are a customer paying your utility bill by monthly direct debit. Your supplier either has its own SUN or uses a third-party agency which uses its own SUN on the supplier’s behalf. You probably won’t even be aware of the SUN but it ensures that BACS knows where to send your money and who to reference in your bank records.

As a business receiving and/or paying money electronically through BACS, you have the same choice as the supplier above; you either have and use your own SUN to facilitate the BACS process or, if you don’t have your own SUN, you pay a small commission to a third party to manage it for you (either a bureau which allocates one of its own SUNs to you or a Payments Institution – see ‘What are the alternatives?’ below). But without access to a SUN, you cannot use BACS to receive or send electronic payments.

Managing your own payments system directly can make you more efficient as well as saving you the commission fees charged by the third party. Let’s consider each of the twin transactions, debits and credits.

Direct Debit receipts: Having direct control over payments coming to you makes you more efficient, with better cash flow control and customer retention.

Direct Credit payments: Again, there are significant efficiency gains to be had from controlling your money out through Direct Credits. It provides a simple, secure and reliable service for routine payments such as wages and salaries. It can also be used for pensions, employee expenses, insurance settlements, dividends and refunds.

SUNs are only issued to businesses who are sponsored by BACS members (the UK’s major banks). Therefore you need to apply to your bank to make an application. Your bank will need you to meet certain criteria. These vary from bank to bank but all look for some key requirements:

• Management expertise: you must be able to demonstrate the ability to enforce the Direct Debit scheme rules, minimise submission errors and maintain the reputation of the scheme.
• Financial reserves: you need to have sufficient reserves* to make any refunds under the Direct Debit Guarantee which protects customers against payments made fraudulently or in error.
• Contractual capacity: in relation to the previous requirement, you must be able to indemnify your sponsor bank against any payments charged back under the Direct Debit Guarantee.

You will also find it difficult to qualify for a SUN for Direct Debit transactions if you have been established for three years or less, or have a turnover of less than £1million. For Direct Credit, however, it can be easier to obtain a SUN. In both cases, check with your sponsoring bank.

The final decision rests with the bank. In most cases a SUN will be granted if the above requirements are satisfied, but additional requirements may also be imposed.

*These reserves are usually placed in a surety bond which constitutes a written guarantee to pay one party (the obligee, or person who has been defrauded or had payment taken in error) an agreed amount if the second party (the principal) breaches the terms of the contract or fails to meet certain obligations. The surety therefore exists to protect the obligee.

There are two options which will enable you to conduct BACS transactions without a SUN:

• Facilities management through a BACS-Approved Bureau (BAB): these organisations manage the facility for you. A bureau will set up a SUN on your behalf but retain actual ownership of it. As the owner, they receive your payments directly into their own account and then reimburse you, charging you a service fee on a monthly basis. Even if you are technically eligible to apply for a SUN, you might still choose this option if, for example, you only make a small number of Direct Debit and BACS Direct Credit transactions each month.
• Collection through a Payments Institution: Payments Institutions are regulated under the PSD (Payments Services Directive*) and collect payments on behalf of their client using their own single SUN. They then reimburse the client and charge a fee. In both cases it is the third party, not you, who must satisfy all the eligibility requirements for owning a SUN.

As explained earlier, you need to apply via a sponsoring bank. Their role and responsibility is to ensure that you meet the criteria and will not bring the scheme into disrepute.

It can take anything from two to ten weeks for the SUN to be granted following your initial request depending on the bank involved, their criteria and the complexity of your business.

With your SUN you can now set yourself up as a BACS user.

You can start processing your own Direct Credit payments immediately, but for Direct Debits you need to decide how to set up your customers’ payments.

There are two ways to do this; your Direct Debit payer can either physically sign a paper Direct Debit Mandate, or give you paperless notification (i.e. verbal or electronic) of their acceptance. This is known as the Direct Debit Instruction (DDI) and you must submit this to BACS using AUDDIS* (Automated Direct Debit Instruction Service).

Then, to collect Direct Debit payments you submit your payment data – including the amount of each payment, bank account number, sort code and payment date – using your chosen method.

The entire payment process is simple and efficient – and it takes less than three days from start to finish. You should also consider the additional management services available that can help save on administration time and reduce costs.

*AUDDIS automates the transfer of Direct Debit Instructions from collecting organisations to the paying banks and building societies via the BACS service. With AUDDIS, the organisation keeps the original signed Instruction and electronically sends the details to the customers’ bank to validate and, if accepted, set up the Instruction on its database.