How to Set Up Variable Direct Debit in the UK

UK businesses can get paid conveniently using the Bacs direct debit service¹. Direct debits are extremely common - and used by 9 out of 10 UK consumers. But while customers are often familiar with direct debit as a way of sending the same amount every month there’s also the option to arrange a variable direct debit for payments which can change in amount or frequency.

This guide covers all you need to know, including the variable direct debit advantages and disadvantages you may want to consider. And as a bonus we’ll introduce Wise Business to help you set up your own variable business direct debit payments in 5 major currencies conveniently.

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What is a variable direct debit?

As the name suggests, a variable direct debit is a direct debit payment where the amount, date or frequency of payment may change.

Businesses may use a variable direct debit when the billable amount changes, either month on month, or relatively frequently. For example, if you’re billing a client by usage, or for a changeable number of hours of work every month, a variable direct debit gives you control of the amount you’re paid. A variable direct debit can also help where you may not need to bill the client every single month, or where your prices may be subject to relatively frequent change.

Variable direct debits are covered under the direct debit guarantee, which offers reassurance for both the customer and the business, and ensures the security and reliability of the scheme.

Variable recurring payments vs fixed direct debit

So what’s the difference between a fixed direct debit in which the customer is charged the same amount monthly, and a variable direct debit? Here’s a summary on some key features:

Direct debit advantages and disadvantages

Using direct debit payments is good for the customer and also for the business being paid. 

From the perspective of the customer, the payment is automated and can not be forgotten. This is simple and avoids any late payment fees which may otherwise apply. For the business, direct debit payments can build brand loyalty and make it far easier to ensure payments arrive on time - particularly as direct debits are billed from a bank account which doesn’t change its number like a card with an expiry date.

Of course, there are a few drawbacks. For businesses, there will be a fee to pay to collect direct debits, which varies depending on the third party sponsor you use. Plus, there’s still the risk of payment failure if the customer doesn’t have enough in their account when the payment is due. This isn’t a great outcome for either the customer or the business - and makes it crucial that you issue advance warning of a variable payment in compliance with the direct debit guarantee. 

How to collect variable direct debit?

To collect a variable direct debit as a small business in the UK, you’ll need what’s known as a sponsor. This is a third party provider which is authorised by Bacs to support direct debit transactions. You may choose your business bank account provider if they offer this service, or set up a standalone arrangement with a direct debit provider instead. 

In either case, the outline of the process you need to follow to collect variable direct debits is the same:

Sign up with a direct debit sponsor

You’ll need to research and select a direct debit sponsor which will support you with collecting direct debits. Different third party providers charge their own fees, so comparing a few options makes business sense.

Create and issue a direct debit mandate 

Your sponsor will help you create a direct debit mandate according to an agreed template², which you can add your own branding to. You will then issue this to your customers. This form is the basis of your agreement with the customer and what authorises you to be paid.

Your customer will return the mandate to their bank

Your customer will complete this mandate either in hard copy or online, including giving authorisation for you to debit from their account as per your agreement. They then need to pass this back to the bank to allow the transfers to begin.

You must notify the customer of the amount and date of each direct debit payment

Under the terms of the direct debit guarantee³ customers must be told with 10 days notice of the amount that will be deducted and when. If you’re using a variable direct debit this means issuing this notice every time you take a payment.

The customer’s bank will process the payment according to the agreement

Assuming there’s enough in the customer’s account, the payment is processed and the funds are delivered to your nominated business account without further action needed.

FAQs - Variable direct debit

What is the difference between fixed Direct Debit and variable Direct Debit?

A fixed direct debit allows a business to collect the same amount from a customer on an agreed interval - monthly, on a given date, for example. A variable direct debit is more flexible, allowing a company to collect different amounts, or to vary the date of collection.

Both types of direct debit are operated by Bacs in the UK and both require the customer to be given advance notice of payments before they come out. If you’re billing a fixed amount you may only need to let the customer know if the payment details are changing from the original agreement - but with a variable payment you need to tell them every time a payment is due, with 10 working days notice.

What is an example of a variable recurring payment?

A variable recurring payment may be used in any situation in which the payment amount isn’t always going to be the same amount, or payable on the same dates or intervals. You might use a variable payment if you bill customers by their usage of a service, for example. Or, as a business owner, you may use a variable direct debit yourself to pay for your business utilities if you have an office or store.

Does variable Direct Debit cost more?

Different third party providers - known as sponsors - facilitate the processing of direct debits. Each provider has their own fees, which may be higher for variable payment compared to collecting fixed amounts. You’ll need to look at different sponsors, including your own bank and third party operators to see which has the best service for your specific needs.

Send international direct debit payments with Wise Business

If you have suppliers 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 send payments to and [set up direct debits for your international bills](https://wise.com/gb/blog/get-local-account-details-in-9-currencies). You can hold currencies in your account at once and switch between them when you need to, always with the mid-market exchange rate. 

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Variable direct debits are especially useful for any business collecting recurring, but changeable, payments from customers. If you have a customer who you need to charge based on billable hours worked, or if you may not need to charge the customer every month, for example, variable direct debits allow you to control the amount you’re paid conveniently. Variable direct debits are also covered by the direct debit guarantee which means the customer knows what will be taken from their account and when - offering reassurance and building trust.

Sources used in the article:

Sources last checked December 20, 2024