We are often asked how long it takes to collect a Direct Debit and when files should be sent to Bacs. In order to collect Direct Debits on the date intended it is vital that collecting organisations understand the Bacs 3-day cycle and the timelines involved. So here we give you the information you need….
What is a Direct Debit?
A Direct Debit is an automated bank-to-bank payment that is governed by Bacs (now part of Pay.UK). It is a payment method used by organisations such as utility providers, membership bodies, charities, not-for-profits and corporates of all sizes. These organisations need to be approved to use Direct Debits in order to collect their income. Once approved, they are known as ‘Service Users’. The Service User will initiate the request for payment and money is received on a known date into the Service Users bank account.
Who are Bacs and Pay.UK?
Bacs was first set-up in 1968 to run 2 payment schemes:
- the Direct Debit scheme (where organisations collect income) and
- the Direct Credit scheme (where they pay money out).
In 2019 Bacs became part of Pay.UK who were set-up to run the UK’s retail payments operations, (which include the Bacs Payment System, the Faster Payment System and the Image Clearing System). Pay.UK are now responsible for writing and updating the Direct Debit Scheme Rules, operating and monitoring the scheme.
What are the steps involved in collecting a Direct Debit?
Broadly, there are 2 parts to setting-up a Direct Debit and collecting money:
1. Authority
The Service User takes authority from the payer and ‘lodges’ this on the payers account to set-up the Direct Debit. The Authority could be collected using a paper Direct Debit Instruction or via a paperless methodology such as telephone / face-to-face sign-up, online sign-up or electronic document signature. The authority is typically then submitted to Bacs electronically using the Automated Direct Debit Instruction Service (AUDDIS). Bacs forward it to the payers bank and if valid, this is then ‘lodged’ and the authority goes ‘live’ on the payers account. (Some organisations may post it which requires additional time).
2. Collection
The Service User requests payment of the Direct Debit by sending the request electronically to Bacs who forward it to the payers bank. The bank then match the request to live authorities lodged on the account and if there is a match, funds are credited to the Service Users account.
Before sending a request for payment, the Service User must give clear Advance Notice to the payer regarding the amount and date of the Direct Debit collection. If the payers bank are unable to match the Direct Debit request to a live authority or are unable to pay the requested funds, feedback will be provided in the form of a Bacs report advising the reason for the failure.
How long does it take to process a Bacs transaction?
All Bacs transactions operate on the Bacs 3-day cycle. This is the case whether a Service User is:
- lodging a Direct Debit Instruction,
- requesting a Direct Debit collection,
- or making a Direct credit payment.
How does the Bacs 3-Day Cycle work?
The Bacs 3-Day Cycle to collect a Direct Debit works as follows:
- Day 1. Input Day. The Service user or their Bureau transmits data electronically to Bacs
- Day 2. Processing Day. Accepted data is processed by Bacs
- Day 3. Entry Day. Direct Debits are collected and credited to the Service Users Account.
It is the same process and timeline for sending the Direct Debit Instruction.
- Day 1. Input Day. The Service user transmits the DDI input file electronically to Bacs
- Day 2. Processing Day. Accepted data is processed by Bacs and forwarded to the paying banks
- Day 3. Entry Day. Valid DDIs are lodged on the payers accounts.
When are the Direct Debit funds received?
Money will leave the Payers Account on Day 3 of the Bacs cycle. it will be credited to the Service Users account on the same day. If payment cannot be made, funds will be returned to the Payers account the same day (Day 3). They will be removed from the Service Users account on Day 5 (or Day 6 at the latest).
When should Advance Notice be sent to the Payer?
Before any collections are made the payer must be provided with an Advance Notice. This must contain information about the amount and date of the collection, as well as the Service Users name and contact details. This should be forwarded to the payer in line with the Advance Notice period agreed with the bank.
How soon after setting up the Authority can the collection request be sent?
As soon as the Direct Debit Instruction is lodged on the payers account it would be possible to submit the Direct Debit collection request. Best practice is to allow time to receive any feedback on failures experienced when trying to set up the Direct Debit Instruction (notified via Bacs reports). It is also important to comply with the Advance Notice period and provide the payer with details of the amount and date to be collected before payment is taken.
What happens if the collection request is sent too early?
The Service User must allow enough time for the Direct Debit Instruction to lodge on a payers account before they request a Direct Debit collection payment. If they do not allow enough time the transaction will fail. In this scenario the Service User will receive a Bacs report called the ARUDD report, with the reason for failure listed as either Payment not Yet Due (error code 8) or No Instruction (error code 6).
When should the file containing Direct Debit transactions be submitted to Bacs?
It is possible to submit files to Bacs up to 30 days in advance of the processing date. If submitted in advance, the correct date must either be contained within the file (and the software be configured to read it) or the correct date must be selected at the point of submission. It can be useful to send files in advance – for example over holiday periods when key personnel may not always be available. If no date is included within the file / selected at the point of submission, the collections will default to the Bacs 3-day cycle and money will be collected on day 3 – as described above.
When working out when to send files to Bacs it is useful to look at the Bacs Processing Calendar. This shows the Bacs 3-day cycle. It can help you plan submission dates allowing for factors such as weekends, and public holidays. Remember, the latest a file can be sent to Bacs is 2 working days before collection day. So if you want to collect on a Wednesday, the latest a file can be sent to Bacs would be the Monday. If the file is sent later than this, the collection will be late.
How are files sent to Bacs?
Submissions are typically made through Bacs-Approved Software; via a Third-party such as a Bacs Approved Bureau or via bank interface. Submissions are authorised or ‘signed’ electronically using a digital certificate for security reasons.
When is Bacs open?
Bacs is open during the payment services window. This window normally opens at 07:00 hours on a Monday and closes at 23:00 hours on a Friday. It is not open on bank holidays.
Questions about the Bacs 3-Day Cycle?
Understanding the Bacs 3-day cycle is vital for organisations collecting income via Direct Debit. This is to ensure that transactions occur on the date intended. Early or late collections can lead to a higher failure rate (for example if funds are not available in the account) and in turn, unhappy customers. It can also require more admin to resolve the issue / collect again.
If you have questions about the Bacs 3-day cycle and related issues, please contact us. We are happy to help.