This is a question we have been asked a few times. On occasion, an organisation might want to reduce the amount collected via Direct Debit. This could be either on a one-off basis, or for ongoing Direct Debit collections. Perhaps the customer or payer has been credited with an amount. Perhaps the payer has incurred less charges than usual. In these circumstances, where a reduced Direct Debit is to be collected, does the organisation need to advise the payer that their collection will be reduced? Here is a quick overview.
What are the organisations responsibilities regarding Advance Notice?
Bacs define the Advance Notice as
“the method by which Service Users give notice to the payer before the first Direct Debit is collected and following any changes to the Direct Debit collection in respect of amount, Direct Debit due date and / or frequency”. (Service Users Guide and Rules to the Direct Debit Scheme v5.7).
If a change is made to the amount collected therefore, the rules indicate that the payer should be made aware of this. This will apply if the amount collected is a reduced Direct Debit, as well as if the amount is increased.
When and how should Advance Notice be provided?
Advance notice can be provided in written, electronic form or orally. Often it takes the form of a letter, statement, invoice or email.
It should be provided, as per the notice period agreed with the sponsoring bank. The default period (the time allowed for receipt of the advance notice by the payer) is a minimum of 10 working days plus postal time (if sent in the post). It is possible to agree a different Advance Notice period with the bank however e.g. 3 working days. It could be different therefore, for different Service Users. The agreed number of days should be documented within the Direct Debit Guarantee.
What are the practical considerations if the Direct Debit is reduced?
It’s important to advise payers if the amount of the Direct Debit increases. Doing so means they are less likely to challenge the collection because they are expecting the transaction. They will be aware of how much will be taken and when it will be collected. They are also less likely to query the collection at a later timepoint or utilise the Direct Debit Guarantee to request a return of funds they believe to have been collected in error. Similarly, advising the payer about a reduced Direct Debit will help prevent any queries from them about the accuracy of the amount taken. It will help prevent any concern regarding a loss of service that could arise if they see a reduced payment being collected.
Not providing Advance Notice (whether for an increased or reduced Direct Debit collection) introduces risks including:
- Customer (Payer) confusion or unhappiness
- A negative impact on company image
- Greater chance of failed collections i.e. if funds are unavailable or the payer disputes the Advance Notice and asks for it be returned unpaid (advised via the ARUDD report)
- Increased risk of Indemnity claims (and the associated admin that accompanies dealing with these) if the payer requests their money back using the Direct Debit Guarantee
- Less chance of successfully challenging Indemnity Claims
- Higher chance of cancelled Direct Debit Authorities (advised via ADDACS reports)
Still got Questions?
If you have questions about how to provide Advance notice, what should be included, how it should be sent – or anything else, please contact us. We will be happy to help!