Choosing the right Direct Debit option: The Ultimate Guide

For any organisation that wants to collect payments there are many options available but Direct Debit remains by far the most popular. It’s cost effective and provides organisations an easy way to get paid on time.

We receive lots of enquiries from organisations that want to collect by Direct Debit, but they don’t really know what the options are or who to approach first. This can lead them to spend a lot of time trying to find a solution without really knowing if it is the right fit. They then have to bend their processes to fit!

In the article below we have set out a simple guide to how direct debits work and how to assess the options available to you.

So, first, we need to understand what a Direct Debit is….

What is a Direct Debit?

A Direct Debit is, in its simplest form, a way of moving money from one bank account to another. It is different from most other recurring payments, such as standing orders as it is set up by the collecting organisation rather than by the payer. It is also variable so that the organisation can vary the amounts and the dates if the payer is notified.

So how do you go about collecting them?

Collecting Direct Debits

There are 3 component parts to collecting a direct debit. The first step is to assess what you have and what you might need to add.

Component 1: – A Service User Number

All organisations that collect have to have a Service User Number. These can only be provided by Payment Service Providers. (typically a bank) who are participants in the Bacs scheme. A full list of banks that can offer a SUN (Service User Number) is available from the Pay.UK website.

To provide you with a SUN the bank will need to go through a credit and financial strength assessment on your organisation. This is because the bank has to cover any reclaimed payments in future, even if your organisation couldn’t cover them.

If you are unable to obtain a Service User Number from your bank then you may still be able to collect via a facilities management company or third-party payment provider. For more information on Service User Numbers, click here.

Component 2 – Direct Debit Management system

To collect the right amounts from the right people on the correct dates you will need a way to manage that data. Typically, the best place to do this would be within your existing organisations CRM/ Member database/ Billing platform. This would mean that the data was visible to you and you had one ‘source of truth’. If your system already has the ability to create files for Direct Debit collection, then that is the best starting point. If it doesn’t then you will either need to develop it, create the files manually, (which we could not advise unless you have very low volumes), or source a direct debit management solution from a 3^rd party. These systems are known as “DDMS” (Direct Debit Management Systems).

Component 3: – Secure method of transferring files to Bacs

This is either going to be via your internet banking system, via some specialist Bacs software (Bacstel-IP) or via a third-party bureau. The data files with your collection information need to be submitted to Bacs a few days prior to the collection taking place. You will also need to collect Bacs reports back to understand the payment statuses. You can normally retrieve these reports via the same channel or alternatively there is a website that you can log into securely to retrieve them.

How to choose the best option for you

SUN – it is nearly always better to obtain your own SUN from a sponsoring bank. This will provide lower fees and more control over your collections as well as better visibility for your customers. Getting a 3^rd party to collect for you using their Service User Number (Facilities Management/ Third party payment provider) usually costs more and is collected in someone else’s name.

DDMS – Best if you can use your existing in house systems so long as they can produce the correct files and codes for Bacs.

Secure transfer to Bacs – Bureaux is probably the best option today for most organisations but be wary of those that charge per transaction as they can become expensive. Collecting via your bank platform is often the cheapest but it is hard to automate or integrate with your systems. Having your own Bacs software only makes sense if you have more than one person who is managing the collections and you have volumes high enough to justify the outlay.

The most cost-effective way to collect is usually to source these 3 things separately but if you can’t get your own SUN or you don’t have a CRM that can produce the correct files then it may be worth going to a provider that can do 2 or all 3 of these things for you.

Let us help!

If you are not sure what is right for you then we can help through our training and consultancy services. We can also provide a bureau collection or direct debit management solution. We don’t offer collections via our Service User Number, as this is a regulated activity.

Once you have the components in place the process of collecting can seem daunting if you haven’t done it before. That’s why we offer a 2-part training course – which can be done in a single day or 2 half days – that covers everything you could ever need to know about collecting and how to manage the process efficiently. If you’re interested, please don’t hesitate to contact us.

Any further questions?

If you are looking to collect customer payments by Direct Debit or streamline payroll and supplier payments, understanding your options is important. For more information on our scheme training options, check out our solutions page. If you want to know more, please contact us today!