Direct Debit and Bacs guide
in simple terms
The aim of this document is to provide an organisation, that wishes to become a Direct Debit Originator, with a concise understanding of how the Direct Debit Scheme works. It provides basic information on the various aspects of the Direct Debit Scheme from application to the processing of their Direct Debit files to Bacs.
Full details of the Direct Debit Rules are given from the Originator‘s Guide and Rules to the Direct Debit Scheme available from the Sponsoring bank.
APT can provide your organisation with a complete consultancy service to make your application for Direct Debit Originator’s status as easy and painless as possible. We can also provide technical expertise and advice on how to automate your direct debit operation.
10 STEPS TO COLLECTING DIRECT DEBITS VIA Bacs
What is Bacs?
Bacs is the company which runs Direct Debit in the UK. They also run the Bacs Direct Credit Scheme, which is used to pay salaries, settle invoices from suppliers or pay ad hoc payments; this is commonly referred to just as Bacs.
Automated Payments are at the very centre of the UK’s financial system, providing an essential service for both consumers and organisations.
Bacs Payment Schemes Limited is a wholly owned subsidiary of UK retail payments authority Pay.UK.
What do I need to start?
Can I collect DD’s and become a DD originator?
An organisation that wishes to collect Direct Debit’s first needs to become an Originator. Your Sponsoring bank will process the application and provide you with a Service User Number, also known as an originator ID, this a unique identification number that enables you to use the Bacs service to collect Direct Debits
The Originator must have a registered office in the UK and a UK sterling bank account.
Its bank will consider the request to Sponsor the organisation as a Direct Debit Originator, but this will be subject to the bank’s assessment of its suitability.
Will my bank sponsor me?
Consideration will be given to its:
- Contractual capacity
- Financial standing
- The quality of its administrative control
- Length of time the organisation has been established.
As a condition of participation of the Direct Debit Scheme, an organisation must execute a standard form of Indemnity obtained from its Sponsoring Bank. The purpose of the Indemnity is to underwrite the protection offered to the Payer under the Guarantee. This liability is unlimited in time and monetary amount.
The Indemnity Guarantee provides protection for the customer. Wrongly collected Direct Debits are immediately refunded by the sponsoring bank and for this reason they have strict rules for who would be eligible.
Contact your Relationship Manager to discuss your application for DD sponsorship. If they are unsure of the process, we can provide you with their Bank’s Bacs liaison team phone number.
Direct or Indirect Submitter
Your Relationship Manager at your bank will tell you if you are eligible for sponsorship on the Direct Debit scheme and offer either a DIRECT or INDIRECT SUN number.
This will determine whether you can collect DD’s directly through a Bacs approved software supplier (direct submitter) or use a Bacs approved Bureau (indirect submitter).
You need to choose which method before you apply as your SUN needs to be linked to a specific software package or Bureau Service.
Three Types of Direct Debit Processes (DDI)
This is the method by which the Originator obtains the Payer’s authority to debit his account. DDI can be obtained and lodged in three separate distinct ways:
Before sending the paperwork – decide which DD route you would like to take. Each application costs you approx. £200, (depending on your bank charges) however we highly recommend applying for Direct Debit Originator Status and AUDDIS Originator Status as a minimum, with Paperless Direct Debit as an option dependent on your business needs.
- Standard DDI – a physical paper copy needs to be signed and sent by post to register at the bank
a paper DDI is signed by the Payer and lodged by the Originator with the Paying Bank by post.
- AUDDIS – paper copy signed and kept by the Originator. The details are sent to the bank electronically within the Bacs file. NB New applications will have levels 1 and 2 as standard
a paper DDI signed by the Payer is obtained, and the information is lodged with the paying bank electronically by AUDDIS, the paper copy remaining with the Originator
- Paperless DDI – No paper – authority obtained by telephone / electronic (internet online form)
the DDI is completed electronically or over the telephone and lodged under AUDDIS.
KYC, Advance Notice, DD Guarantee
Once DDI type has been decided, there are a few more important details to be finalised and included in the application:
- KYC (Know Your Customer)
- Advance Notice
- Direct Debit Guarantee
KYC stands for ‘Know Your Customer’ and refers to the checks that Service Users should carry out to ensure that the person they are signing up to pay by Direct Debit is the person they claim to be and that they have the authority to agree to the Direct Debit.
It is the organisation's responsibility to verify the customer and validate their details like identity, account details, customer address. A number of software packages are available to assist in this process.
Applying modulus & KYC checking at point of sale is mandatory for Paperless Direct Debit service users.
Is the method by which an Originator gives notice to the Payer before the first Direct Debit is collected. Any changes to the following will also require an Advance Notice to be sent to the Payer:
- The amount to be collected
- Due date
- Frequency of collection
The Advance Notice must be a clear and unambiguous personalised advice and can be written, in an electronic form (for example an email notification) by letter or given verbally. The Originator may agree the period of Advance Notice with the Payer.
If the Advance Notice is given by means of a written notification, it can be given to the Payer within the following documentation:
- A letter addressed to the Payer
- In a schedule where dates/ amounts are known in advance
- In a statement *
- In an invoice *
- Within a contract between the Originator and the Payer
* These documents must clearly display that collection is for Direct Debit, the amount to be debited and the collection due date.
Direct Debit Guarantee
Direct Debit Guarantee provides an assurance to the Payers that any monies taken in error by the Originator or the Paying Bank will be immediately refunded by the Payer’s Bank.In addition, it confirms to the Payer that he may cancel a Direct Debit at any time and states the period of Advance Notice agreed to be given to the Payer.
This is a sample template for a Guarantee is offered by all banks and building societies that accept instructions to pay Direct Debits:
If there are any changes to the amount, date or frequency of your Direct Debit (insert your organisation name) will notify you (insert number of) working days in advance of your account being debited or as otherwise agreed. If you request (insert your organisation name) to collect a payment, confirmation of the amount and date will be given to you at the time of the request.
If an error is made in the payment of your Direct Debit , by (insert your organisation name) or your bank or building society, you are entitled to a full and immediate refund of the amount paid from your bank or building society -If you receive a refund you are not entitled to, you must pay it back when (insert your organisation name) asks you to.
You can cancel a Direct Debit at any time by simply contacting your bank or building society. Written confirmation may be required. Please also notify us.
This Guarantee must be provided to the Payer and can form part of the following documents:
- DDI as a tear off portion to be retained by the Payer
- Advance Notice
- Other correspondence issued in respect of the application
- Once the application is processed through the bank you will receive confirmation of your SUN. This 6 digit number must be incorporated into your DD mandate. a) If required by the bank – send a test file – APT can help you with this.
- Decide how you will manage your DDs.
- Prepare your file (refer to dd file format guide).
- Bank gives you go-live date.
- Take note of the collection cycle.
Decide how you will manage your DDs
There are two ways an Originator can submit files to Bacs:
- Files can be submitted to Bacs directly from an Originator’s own computer using a BacsTEL-IP compliant software, or
- An Originator may contract a Bacs Bureau to produce and submit its Direct Debit collection files to Bacs for processing.
APT is an accredited Bacs Solution Supplier & Bureau, and if you wish to use this service, please contact our Sales Team on 0208 760 9898.
Direct Debit collections are split into three levels within the banking system:
Normal collection of Direct Debits - applies to many older companies where the paper mandate is completed and signed by the customer. This is then posted off to the company’s bank and once registered forwarded to the customer’s bank to be set up. This takes about 10 to 15 days and there is little communication if the mandate doesn’t get set up properly.
AUDDIS - this is the electronic set up and notification system of collecting Direct Debits – currently mandatory as a set up for new collectors. The paper mandate is still completed by the customer, signed and returned to the company collecting the Direct Debit and can be in an electronic form. The details of the new Direct Debit are included in the Bacs file with the set up code 0N. This takes 3 – 5 working days to set up, (although we always advise our customer to allow 5 working days between the set-up instruction 0N and the first collection 01). The benefit of this system is obviously time to set up but also that any discrepancies are reported back to the company via the payment services website immediately.
Paperless - the DDI is completed electronically or over the telephone and lodged under AUDDIS. All parts of the DD management are done electronically usually with a Direct Debit Management database.
Using any of the methods above you would then need to create an input file for Bacs processing - How this input file is generated and submitted to Bacs will depend on the Originator’s in-house Direct Debit system.
An Originator must maintain information for its entire Payer’s relating to the lodgement of new DDI, amendments & cancellations and amounts and dates of payments. This can be achieved in several ways:
- Manually - If the Originator is maintaining the Direct Debit information manually, the above data can be entered on a spread sheet. A file is generated and input into a BacsTEL-IP compliant software, e.g. APT iConnect, to produce a DD collection file for submitting to Bacs for processing.
- Database or DD Management System - Direct Debit information is stored in the Originator’s own database. Direct Debits due for collection are extracted and an input file is generated which is submitted to Bacs for processing, using a BacsTEL-IP compliant software like APT iConnect.
Prepare your file
The Originator extracts all the Direct Debits due for collection from its manual or computer records and generates a Bacs file. This file must conform to the Bacs input requirements as specified in the Bacs User Manual (available on Bacs website).
Very important to format it properly, use text files to avoid formatting issues especially when using an excel spreadsheet to .csv format. APT can help with this, feel free to give us a call!
Press here for a standard BacsTEL file format example.
Unique Direct Debit reference – this is the individual reference assigned to each Direct Debit at point of sign up and remains unique to that Direct Debit for its life. It is the primary point that is checked by the bank as to whether the Direct Debit is valid. It can be in any alpha and / or numeric format but must be between 6 and 18 characters – example ABC123 or 123456789ABC.
Name – this is usually the bank account name of the individual, maximum field length is 18 character which must be alpha. No commas or other punctuation.
Sort Code – this must be 6 digits and include any lead zeros.
Account number – this must be 8 digits and include any lead zeros.
Value / amount for collection – must be to 2 decimal places, with no other punctuation – this includes the comma separator for over 1000 and £ signs.
Direct Debit code – this is the identifier that tells the bank what to do with the information being sent. As follows:
- 0N (zero N) This is the code which tell the bank it is a new mandate to be set up – the value field would either be left blank or set to zero – If there are values in the customer file then our system ignores them and will change these to zero in the Bacs file.
- 0C (zero C) Instructs the bank to cancel an existing Direct Debit for that customer.
- 01 First collection of the Direct Debit.
- 17 Normal ongoing Direct Debit collection.
- 18 Represented Direct Debit.
- 19 Final collection of a Direct Debit usually used in conjunction with OC code.
Processing Date – can be any format as long as it is consistent – we can collect up to 30 days in advance. Must be included in a file format where AUDDIS is used.
Bacs collection cycle
Completion & Lodgement of DDI
The DDI is the authority given by the Payer to his Paying Bank to allow the Originator to collect Direct Debit s from his account. Clear instruction must be given to the Payer to return the completed DDI to the Originator.
- If the Originator is using the Paperless Direct Debit Service, it must issue a written confirmation letter to the Payer within 3 working days of the sign up.
- The Originator will lodge the DDI with the Payer’s account holding branch, either by sending in the paper DDI form or by AUDDIS.
- The paper DDI can be sent immediately or within 6 months from the date the DDI was signed by the payer before collection can commence.
- If using AUDDIS, an Originator must send a ‘0N’ to lodge the new instruction - within 10 working days of the customer signing the DDI.
- On receipt of the DDI, the Paying Bank will validate the DDI and is either accepted or rejected by the Paying Bank.
- Originator must allow a minimum of 5 working days from lodgement of the DDI before the first collection is presented but must also allow for the 14 cancellation right from sign up. Along with the appropriate advance notice given to the customer.
The Bacs Cycle is made up of 3 working days as follows:
- It is the Originator‘s responsibility to ensure that collection is made on the due date i.e. the date advised to the Payer within the Advance Notice.
- The collection must be made on or within 3 working days of the due date i.e. the date advised on the Advance Notice.
- The Originator will extract all the Direct Debit due for collection from its records and generate an input file which is submitted to Bacs for processing.
- Each Direct Debit sent to the Payer’s bank account, must be submitted with the appropriate transaction code.
- Should the Originator fail to collect the Direct Debit as specified further notification must be given to the Payer.
- It is recommended that the Originator does not submit a file to collect the first Direct Debits from a Payer’s account earlier than Day 6 to ensure that no 0N rejections are received
Rejected DDI – set up instructions
- If rejected, the DDI rejection notification is returned to the Originator immediately or no later than 3 working days from the date of receipt by the Paying Bank. Notification is sent electronically from Bacs Payment Services in the form of a report – i.e. AUDDIS rejection report. Notification that the report is available to download is emailed by Bacs to the named person on the application form. Forms posted to the bank will not receive these notifications.
- The Paying Bank will indicate the reasons why the DDI has been refused, but it also reserves the right to refuse a lodgement without giving a reason.
- When the Originator receives a rejected DDI, he must contact the Payer to arrange alternative payment method
To reduce the incidents of rejected DDI due to incorrect bank details, APT offers Validata API to enable the Originator to validate the bank details provided by the Payer before the file is submitted to Bacs for processing.
The reporting system provided by Bacs is extremely helpful in maintaining up to date details of your clients and reducing the amount of rejections.
Any reports received must be acted on immediately.
With BacsTEL-IP, the Originator can download the following reports from the Bacs website here, or via APT’S Bacs approved Software (iConnect). Direct Submitters can access this using their smart card login. Indirect submitters are issued with a Contact ID and Password direct from the Bacs 2nd level support team.
An email will be sent in advance, notifying the user when a report is available to be downloaded.
Separate reports for amendments (ADDACS) for existing DD or (AUDDIS rejection) for failed set up instructions. Failed DD collections come through on ARUDD (or UDD) report.
Originators must check these reports and action any items returned or rejected as appropriate.
The Originator is advised of any AUDDIS DDIs which have been rejected by Bacs or returned by the Paying Bank. Reason codes will be displayed for these returns.
ARUDD (Automated Return of Unpaid Direct Debit)
This report lists the unpaid Direct Debit s returned by the Paying Banks and will usually be available for download from the Bacs website by Day 4. Each returned item will include a ‘Reason Code’ e.g. Account closed, Refer to Payer, Instruction cancelled etc.
Originators should check this report and take the appropriate action in respect of any unpaid Direct Debits.
ADDACS (Automated Direct Debit Amendment/Cancellation Service)
ADDACS reports are amendment advices from the Paying Bank and are independent of any files uploaded for processing.
A Payer may request his Paying Bank to re-instate a DDI up to 2 months of cancellation. On receipt of this, the Originator must confirm the re-instatement with the Payer and issue an Advance Notice
Under the Direct Debit Guarantee your customers, who are paying by Direct Debit, have a right to cancel or claim the collected money back if they think that the DD has been collected wrongly. The Bank (as a sponsor) then would refund the money to the Payee and issue an indemnity claim to the Originator (yourself).
The indemnity claim process
- Customer (payer) seeks a refund from their bank.
- DDIC report generated and originator notified to access report.
- The Originator assesses the requests for a refund (seeks evidence as necessary – in the form of original dd mandate or confirmation advance notice documentation).
- Accepts or declines the request for a refund – the payer is automatically credited so the payer’s bank will need to be contacted to advise.
The Challenge Process
On occasions, Indemnity Claims are raised incorrectly. In cases like that, Bacs allow to challenge the claim.
- To raise a challenge you have to approach the bank contact point detailed on the Bacs.co.uk website.
- The challenge and evidence need to be transmitted to the bank that raised the indemnity claim.
- There are prescribed timeframes for responses by Banks.
- The Bank will either accept or decline the challenge.
- If accepted the DDIC will be cancelled.
- If declined the DDIC will process and you have the option to engage with the payer refunds for agreed challenges can exceptionally occur outside of the settlement cycle.
- Counter claims are believed to be increasingly rare.
- This is primarily because there are very few instances when they can be used.
- Counter claims can only be raised after a DDIC has settled on WD 14, and must be raised within the following 14 working days (so by WD 28).
- A counter claim is raised via your sponsoring Bank.
- The Guide and Rules provide details of scenarios where a counter claim may be raised and relevant evidence required.
- Counter claims are NOT an alternative to the challenge process.
DDI Lodgement and Collection Cycle
The Service Users Guide and Rules to the Direct Debit Scheme here. Section 7 – Exception Events.
Bacs Service Desk: 0370 165 0018 Contact Here.
The foregoing is a brief overview of the process involved to become a Direct Debit Originator. It provides a basic understanding of the main aspects of direct debiting, the time scales you have to adhere to, and the information you need to provide to generate a Direct Debit collection file.
It is important that you have a system that can manage, maintain and produce this information and the necessary software to process your submissions to Bacs.
APT can help with all aspects, tailored to your requirements:
- Provide an additional consultancy service and assist you with your application for Direct Debit Originator status.
- Design the relevant documents according to your requirements and liaise with your Sponsor to obtain approval of these documents.
- Provide a Direct Debit Management System to maintain your Direct Debits and produce Bacs files and relevant reports.
- If you already have a database in place which currently maintains your customer’s details information, discuss the best way to reproduce the necessary documents for your direct debit operation e.g. Direct Debit Instruction forms, Confirmation letters, Advance Notice etc.
- Supply our BacsTEL-iP compliant software, APT iConnect to process and submit your Direct Debit files to Bacs.
- Alternatively, provide a Bureau service to process and submit your files to Bacs.
- If your organisation is a Paperless Direct Debt originator that signs up its customers via the internet, we can design a facility whereby Payers can complete their DDI online.
- Provide an online ISCD facility using our Validata web service.
- Integrate our Validata web service into your existing database or financial application.
If you are interested in any of the services APT can provide, please contact us on 020 8760 9898 or email sales@aptBacs.co.uk