A Guide to Direct Debit Mandate in the UK

If you’re taking recurring business payments, for customer subscriptions, ongoing services, retainers or similar, you may be considering setting up direct debit payments to make it easier for your business, and for the customer. To do so, you need a direct debit mandate (DD mandate).

This guide walks through the nitty gritty about DD mandates so you can talk to your bank about getting started. And because your bank isn’t the only way to receive customer direct debits, we’ll also touch on Wise Business, a non-banking alternative which offers multi-currency accounts with no ongoing fees and ways to get paid in foreign currencies conveniently.

💡 Learn more about Wise Business

What is a direct debit mandate?

The key to using direct debits in the UK is the direct debit mandate - also called a direct debit instruction. This is the one time authorisation you’ll need as a business owner, to take direct debit payments. So - what is a direct debit mandate, and how does the process work?

In the UK, the direct debit mandate rules and operation falls to Bacs¹. Bacs works with banks and companies to manage direct debit agreements and payments, which can be easier and more secure for both companies and consumers.

In short the direct debit mandate is a standardised authorisation and request which companies can provide to customers, to get their permission to deduct regular payments from the customer’s bank or building society account.

The company will issue the customer a blank direct debit mandate, which the customer must complete and authorise. Essentially, the customer agrees that the company can deduct either a fixed or variable amount from their bank on a recurring basis. The company will then inform the customer prior to withdrawing a payment from their bank - confirming the date and amount of the planned withdrawal, before the money is automatically deducted.

This means the customer does not have to remember to pay a recurring bill and the company can be confident it’ll get paid on time, every time.

Direct debit mandate example

So, when might you use a direct debit mandate?

Offering customers direct debit payments makes sense for any business which takes recurring payments. This might be a freelancer on a retained arrangement from a client, a subscription service, or any other scenario in which the same - or varying - amounts are paid at regular intervals.

Direct debits allow the customer to authorise the business to deduct their billed amount directly so they don’t need to remember it - but they’ll always know what will be withdrawn, and when, making this a safe choice.

It's also super convenient for businesses. Plus, if you have an account which offers multi-currency features, like Wise Business, you could also offer overseas customers the option to pay by direct debit if you choose to.

How does the direct debit mandate work?

The direct debit process is pretty straight forward. Here are the key steps on how the direct debit mandate works for companies using direct debit to receive customer payments.

1. Inform your bank or business account provider that you want to use direct debits - you may undergo eligibility checks at the point, and can get more information from the bank about their processes
2. Choose the direct debit company you’ll use - there are several good intermediary companies which can help small businesses to get started with direct debits
3. Create a Bacs approved direct debit mandate form to issue to your customers - the direct debit form must contain specific information which we'll cover next
4. Issue customers your direct debit form - they can complete it and either pass it back to your or their bank, depending on their preference and the process you've set out for them

Once direct debit mandates are in place, you will be authorised to deduct payment from your customers’ banks. It’s mandatory to inform the customer of what will be deducted and when in advance.

What is a direct debit mandate form?

The direct debit mandate form will usually follow a template from Bacs, although you can add your own branding and company information to the template with approval. The information you’ll need to capture follows a standard format including²:

• The name and address of the customer’s bank
• The customer’s name and address
• The customer’s bank account number and sort code
• Customer signature and date to authorise the direct debit
• A direct debit mandate reference number

Direct debit mandate rules

You can access the full rules or regulations related to collecting direct debits from Bacs, once you’ve registered online³. There are various microsites which contain all the required information for different situations and businesses.

Broadly, the rules you need to follow include informing the customer before any payment is deducted from their account, and offering the option to cancel at any time by notifying their bank.

Benefits of collecting direct debit payments

There are benefits of collecting direct debit payments for UK businesses - and there are also benefits for the customer.

From the business perspective:

• Direct debits are cheaper and easier than using cheques or cash
• You’ll be able to set payment schedules to manage cash flow
• You can collect set or variable amounts, on the dates or intervals agreed by the customer
• It makes reconciliation easier as payments are automatic and only flagged to you if there’s any issue

For the customer, there are also benefits:

• Direct debits are automatic so you don’t have to remember to pay bills
• You’ll be notified of payments before they're deducted
• Direct debits are covered by guarantees which means you get your money back if a mistake is made

Collect direct debit payments with Wise Business

If you’ve got an international business, Wise Business can be a great way of setting up direct debits for your customers in foreign currencies. Allow your customers to pay in their home currencies, even if they’re abroad, to give your business greater reach internationally and make it easier to grow your business across borders.

Use your Wise account to hold and exchange 40+ currencies, send payments to 160+ countries, and get local and SWIFT account details to receive payments in multiple currencies by customers, PSPs and marketplace sites.

Hold your balance in foreign currencies, or when it’s time to convert from one currency, do so with the mid-market exchange rate with low fees from 0.33%.

Wise Business accounts also have the following great features:

• No monthly fees or minimum balance requirements
• Debit and expense cards for use in 150+ countries
• Batch payment solutions
• Cloud accounting integrations
• Wise API to streamline workflow

Make it easy to hold, send, spend, receive and exchange foreign currencies for your business, with Wise.

Get started with Wise Business 🚀

Use this introduction to the direct debit mandate in the UK to learn more and get started with taking customer payments by direct debit. And while you’re busy thinking about making your company more efficient, don’t forget to check out Wise Business as a great tool to save time and money when you transact internationally.

Sources used in this article:

1. Bacs - direct debit
2. Bacs - DD instruction form examples and templates
3. Bacs direct debit rules

Sources last checked 26-Sep-2024