Direct Debit Collection Rules in the UK

Getting paid using direct debits can save you time, encourage customer loyalty and be cheaper than processing other payment options such as cash or cheques. If you have a UK registered business you may consider using a Bacs direct debit to collect customer payments, for ongoing services, retainers, or subscriptions for example. In this case, you must know and comply with the direct debit rules for companies which exist to keep the system running smoothly and securely.

Read on for a full guide to the direct debit collection rules in the UK. Plus, we’ll touch on Wise Business which offers low cost international business accounts which can be used for making direct debit payments in 5 major currencies conveniently.

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What are direct debit rules?

Using direct debits can be really helpful for both the business and the customer. However, as this is an automated payment arrangement, it is a system which relies on trust and security. That’s where the direct debit scheme rules come in.

Bacs - which operates the UKs direct debit scheme - has strict direct debit collection rules to make sure that customers are protected, businesses get paid on time, and any issues, errors or problems are addressed and resolved. 

Bacs direct debit rules are set out in comprehensive guidelines arranged according to your role in the direct debit process, so you can get the full detail if you’d like to - this guide covers all the basics of direct debit collection rules in the UK, but isn’t intended as a replacement for your own research¹.

Direct debit rules UK - an example

A good example of the direct debit rules in play would be if a business with a live direct debit mandate needs to change the payment arrangement the customer agreed to. 

Let’s say your customer completed a direct debit mandate to allow you to collect a monthly recurring payment, but your billing cycle is going to change to a quarterly system. 

In this case, the direct debit rules stipulate that as the business must inform the customer of the change with at least 10 working days notice. 

By complying with this rule, you give the customer adequate notice to change their payment arrangement if they need to - and time to make sure that there’s enough money in their account when the direct debit payment is due. 

This is reassuring for the customer - they’ve been properly consulted and informed - and for you as the business owner, as the chance of a failed or challenged payment diminishes.

Direct debit collection rules list

As we've seen, direct debit rules exist to make sure the UK direct debit scheme can operate securely. This gives reassurance to businesses that they’ll get paid, and to customers that there’s recourse if anything goes wrong.

Let’s look in more detail at the key rules a UK business needs to follow in order to collect direct debits.

You must access the direct debit scheme through a sponsor

Small businesses can’t directly access direct debit collection services. For security, small UK businesses - known as service users in this context - can only collect direct debit payments through a third party, known as a sponsor. This is usually the bank you use for your business account. 

Your sponsor will issue you a SUN (Service User Number) which is used to make sure that all payments are directed securely to your account.

You must use an acceptable direct debit mandate form for customers

When a direct debit is set up, the process will include the customer giving the business permission to collect money from their account on an agreed basis. The form used to give this permission is called a direct debit mandate, or a direct debit instruction². The customer completes this form in hard copy or online and passes it to their bank to show authorisation.

To use direct debits in the UK you must use an approved direct debit mandate form, which is usually provided by your sponsor, to make sure all the required detail is captured. 

Learn more about the direct debit mandate requirements here.

You must collect payments in GBP, to a UK bank account

Bacs payments are processed in GBP in the UK. If you’re receiving customer payments through direct debit, operated by Bacs, you can only receive your money in pounds, to a UK based account. This is still the case if you have a foreign business.

Direct debits can be paid in other currencies too. If you’re looking for a way to pay a direct debit to a business in the EU, for example, your transfer will be processed by a different organisation, the European Payments Council. You don’t necessarily need an EU business bank account to pay EUR direct debits, either - you could set up your own outgoing direct debits with an account from Wise Business if you need to, for example.

You must inform the payer of any changes with adequate notice

Direct debits offer customers the direct debit guarantee³, which reassures the payer that there’s a resolution process if anything goes wrong in the transfer. One aspect of this guarantee holds that the business collecting a payment must give adequate notice if the amount, date or frequency of a direct debit needs to change. 

Adequate notice usually means letting your customer know with 10 working days notice if any changes are required.

You must record direct debit rejections 

If a direct debit agreed by a customer is rejected by their bank - for example, because of a lack of funds in the customer account - you are responsible for recording this.

You must engage with and honour the direct debit guarantee

Finally, you need to understand and honour the direct debit guarantee, which states that customers are entitled to their money back if a direct debit payment is incorrectly collected. Your sponsor - usually your bank - will manage this process.

FAQs - Direct debit scheme rules

What is the minimum notice for a Direct Debit?

If you need to change the amount, date or frequency of a direct debit which a customer in the UK has already agreed to, you must let the customer know with at least 10 days to prepare. 

You’ll do this by issuing an Advance Notice of Direct Debit - usually through a form your sponsor bank will prepare. This document confirms the customer’s bank details, the direct debit reference, and the new payment details.

Can a Direct Debit be taken without the customer's permission?

No. A company can not debit a customer’s account without a direct debit mandate, which is the document the customer completes to authorise the business to debit their account. The customer will complete the direct debit mandate - often online - and send it to their own bank, to inform the bank that they agree to the business requesting payments. 

Direct debit mandates must include a specific set of information to allow the payment to be properly processed, and so most sponsors use their own template forms to make the process frictionless.

Can a company increase a Direct Debit due amount without notice?

No. Under the direct debit guarantee, a company must give the customer at least 10 working days notice of any changes to their direct debit, even if a direct debit mandate has already been supplied. If the amount is increased without notice by the organisation - or a mistake is made by the bank or building society processing the payment, the customer is entitled to a full and immediate refund.

This rule applies even if the direct debit is set to a variable amount. If you’re billing a customer based on their usage of a service, for example, the amount you charge by direct debit may vary month on month. The customer will expect this as part of their direct debit agreement. However, you still need to give advance information about what is being billed, and when. This is to protect the customer, and give them time to query any increase they’re not expecting - but also to reduce the number of rejected payments where the customer doesn’t have funding in their account to pay. 

Accept international direct debit payments with Wise Business

If you have customers in other countries, or would love to trade internationally in the future, it’s super handy to have a Wise Business account.

With this powerful multi-currency account, you can accept payments from currencies and set up direct debit for your customers. You can hold currencies in your account at once and switch between them when you need to, always with the mid-market exchange rate. 

Get started with Wise Business 🚀

Getting paid for your UK business using direct debit can be a convenient, reliable and easy option. It’s perfectly suited to on and offline businesses operating on a subscription model, charging a retainer to ongoing clients, or billing similar amounts on a regular basis for services - it can also be used by companies invoicing different amounts every month. Direct debits make it less likely that the customer forgets to pay, and can build trust and loyalty to your brand.

The UK’s direct debit system is operated by Bacs, and works thanks to strict direct debit collection rules. These direct debit rules are in place to offer guarantees to customers, and reassurance to businesses, making this a secure and popular option for all types of payments.

Sources used in this article:

Sources last checked December 19, 2024