Troubleshooting 5 Direct Debit Errors

Direct Debit errors are rare. It makes sense therefore, to use Direct Debit to collect regular payments such as utility bills, memberships, subscriptions and more. This is a reliable, convenient, cheap, trusted and predictable method of payment. The collecting organisation is in control and can ensure that the amount, date and reference are all correct. With efficient and compliant processes, the risk of errors should be low. BUT, when errors do occur, it is often for common reasons. Typically these reasons could be prevented, so here is an overview of the top Direct Debit errors that we see. We have included an insight into why these issues happen and how to prevent them.

Top 5 Direct Debit Errors to Avoid

1. Direct Debit collected early

The payer should be advised when their Direct Debit will be collected. Typically this will be on a given date e.g. 1^st of month / last working day of month. It could be triggered by an event – such as usage of a service or goods. The organisation is responsible for ensuring that collections occur on time and as advised to the payer. Sometimes however, Direct Debits might be collected early in error. Common reasons why, include:

A lack of understanding of the Bacs 3-day cycle. Files can be submitted to Bacs up to 30 days before the collection date. This is useful for example during times of planned staff absences. It only works however if there is a date within the file to govern when collections occur – OR, if the submitter selects the correct processing date within submission software. If there is no date within the file, or the user is unfamiliar with the 3-day Bacs cycle, then collections can occur early,
Incorrect software configuration,
A change to the collection date without the required advance notice being provided.

The Impact

If a Direct Debit is collected early it can lead to a higher rate of failed collections. A payer may not have funds available for example, if they have not yet been paid their salary. If the early collection puts them overdrawn it could also lead to bank charges. The collecting organisation might be responsible for repaying these. In turn, the disruption can cause anger and negatively impact upon the image of the collecting company. It could even lead to cancellation of the Direct Debit and/or underlying agreement and to an Indemnity Claim. This is where the payer requests a refund under the Direct Debit Guarantee. The payers bank then recover the funds from the Service User by raising a claim against them.

Service Users should take steps to mitigate the risk of collecting early. They should ensure that software is configured to extract a processing date from the CRM. This prevents early collection. If it is not possible to extract a date per transaction, organisations should ensure that staff are trained. Staff should be familiar with the Bacs 3 day cycle and know when to submit files to Bacs. This is especially important over holiday periods where less knowledgeable team members may be undertaking the Bacs processing.

2. Direct Debit collected late

Common reasons for collecting Direct Debits later than intended, include:

Software failure. Either an issue with the CRM that results in a delay in extracting the necessary information to submit to Bacs OR an issue with Bacs submission software,
Unexpected staff absence e.g. sickness or holiday that results in team members being away from the office,
Smartcard failure. Smartcards can be lost, stolen or expire and typically there is a 3-5 working time-lag to obtain a new card. If organisations do not have enough smartcard holders then they may experience loss of access,
Lack of understanding of the Bacs 3 day cycle. If team members don’t understand the Bacs cycle, then files could be submitted late. Even a delay of 1 or 2 days will impact the organisations income. This is especially true when additional bank holidays e.g. over Christmas and Easter could means files should be sent earlier than usual to Bacs.

Collecting Direct Debits later than advised to the payer can negatively impact upon success rates. The payer might no longer have funds available for example. It also impacts upon company image and the relationship with the payer. Service Users can mitigate these risks by:

ensuring that staff are trained and are familiar with the Bacs 3 day cycle,
having contingency software and back-ups in place,
having adequate numbers of smartcard holders,
developing a relationship with a Bacs Bureau who could submit files on their behalf if required.

3. Direct Debit collected twice

This Direct Debit error can occur because the whole file has been submitted twice – e.g. by two different team members. In this scenario, the Direct Debits would be collected twice on the same day. It can also occur where the same file is submitted a few days, a month – or even one year apart. This can occur when a team member has manually selected an old file for processing by mistake. In addition, within a file, some transactions can be duplicated. This can happen if there has been a software issue. Alternatively, it could occur if multiple records are created for the same customer in the CRM, in error.

Strong processes should prevent this from occurring. These processes could include checks on submissions e.g. typical volume and value checks, or highest and lowest transaction checks. This could highlight duplicate files as well as duplicate transactions and any transactions within the file which are in error. It should also include good data management. Extracted files should be named appropriately for clear identification and should be deleted once processed. Even better, the process to extract and submit the information could be automated to prevent manual errors from occurring.

4. Direct Debit Amount is not correct

Collecting the incorrect amount can cause various headaches. From the payers point of view, too much money collected can be infuriating. It could lead to financial hardship, bank charges if the payer is forced into overdraft and a loss of trust. From the Service Users point of view it can result in time-consuming administration to answer customer complaints and rectify. There is also an increased risk of Indemnity Claims and a negative impact upon company image.

The wrong amount could be collected for various reasons. It could be due to a decimal place issue (changing the amount by a factor of 10 or 100). This could affect all transactions in the submission. Alternatively, it could be an individual Direct Debit amount in error. This could be due to incorrect data entry at point of set-up. Processing checks e.g. volume, value and individual items can mitigate the risk.

5. Direct Debit is not collected

As well as issues where Direct Debits are collected with errors, we also see examples of Direct Debits NOT being collected. This could be due to software failure, smartcard failure, staff absence or other issues. Obviously, this can seriously impact an organisations income. It can also lead to concern amongst payers who may not wish to pay double the collection next time around. Having adequate contingencies in place can help mitigate this risk. These might include ensuring enough staff are trained to know how to process the Bacs files. It could include having multiple smartcard holders to ensure contingency. It could also include having a bureau on standby to act as contingency / back-up for submissions if required.

Mitigating the risk of errors

All parties involved in the Direct Debit process can be impacted by collection errors. Mitigating these risks can prevent errors – and ensure that the team know how to respond if issues do arise. Best practice advice includes:

Automating as much as possible to remove the risk of human error
Establishing controls for manual processes – i.e. pre-submission checks
Regularly applying Bacs reports to the CRM
Ensuring staff are trained
Considering an out-sourced approach to Bacs experts
Keeping customers informed
Maintaining relevant process documentation
Developing, testing and regularly reviewing a Contingency plan for submissions.

Direct Debits are a powerful tool for smooth, reliable payments. Errors should be rare. By understanding the most common errors however, Service Users can mitigate the risk of the issue occurring.

Still have questions?

If you have questions, Contact us. We are here to help!