Direct Debits in the Leisure Sector

There are a lot of benefits for joining members in paying via Direct Debit. Often, the most convincing argument will depend on the individual joiner and their circumstances. A busy parent with children running around might be convinced by an explanation of the convenience of Direct Debit. This could include the fact that the payer doesn’t have to remember to make payment – the organisation will manage the process for them. In this way, the payer will not lose access to services e.g. swim lessons for their children, because the leisure centre will ensure the payment occurs. For more cautious joiners, reminding them about the security of the payment method and the protection offered by the Direct Debit Guarantee can reassure them. Likewise, messages about the ease of identifying and if necessary, cancelling the payment method could be persuasive.

For the collecting organisation, Direct Debit is often the cheapest way to collect income. It gives predictable income on a known date, which can help with forecasting. In addition, there is less admin time required for reconciliation and, if prices change it is a simple process to amend amounts. (Direct Debits, unlike standing orders, are not set up for a fixed amount). These are just some of the reasons why using Direct Debit can be beneficial.

Paperless Direct Debit sign-up methods that are often used by leisure centres include online sign-up (either over the internet or via an App); telephone sign-up and face-to-face sign-up. These sign-up methods can eliminate paperwork, delay and admin/postage costs. They offer quicker, immediate sign-up allowing collections to begin earlier and they can deliver an improved customer experience. Crucially, they can enable the real-time checking of bank details at point of capture. This occurs by utilising modulus checking software within the Leisure Management System or within the Bacs submission software. This can help identify errors to allow for earlier correction. 

Offering Paperless Direct Debit sign-up does require the organisation to undertake mandatory KYC (Know your Customer) checks, though these do not need to be onerous and can be fairly simple to undertake when there is a physical location that members will visit.

Whilst there are benefits offered by paperless sign-up it can still be useful to have paper Direct Debit Instructions for payers to complete. They can be useful for example, if more than one signatory is required to sign on an account. Often it is advisable to offer different sign-up methods to accommodate preferences of as many potential members as possible.

In deciding how many collection dates should be offered, there are a number of factors to consider. These include convenience and ease for the payer; the number of administrative processes and payment frequencies the organisation want to operate; the type of service provided and the cost involved.

It is possible to use Direct Debit as a payment method for regular payments (e.g. weekly, monthly, quarterly and annually). Also, it is possible to collect these payments on any working day. This doesn’t mean that you have to offer any working day however as a collection date. As an organisation you may choose to only offer one collection date per month – or perhaps two. The fewer the collection dates, the fewer administrative tasks to process. As a result, many Leisure Centres only offer one collection date. Typically the most successful collection dates for consumer payments are those at the beginning of the month, just after salary has been received, e.g. 1st of the month.

We are often asked about ‘cut-off dates’. First it is important to understand what is meant by this. 

Most Leisure Centres will apply a ‘cut-off’ date for new joiners. This is understood to mean the date after-which the Service User is unable to set-up the Direct Debit for collection in the following time period. If a member joins after this date, they will typically pay a pro-rata amount by another payment method for the remainder of the current time period and for the following time period. This allows time for the Direct Debit to be set-up.  An Example: If a Leisure centre collects a monthly membership fee on the 1st of the month, they may impose a ‘cut-off’ of the 20th of the prior month. Those joining before the 20th November for example, will pay a pro-rate membership fee for the rest of November and start paying by Direct Debit on the 1st December. Those joining after the 20th November will pay a pro-rate amount for the rest of November and December and start paying by Direct Debit on the 1st January.

When deciding what the cut-off date should be, there are a few considerations. One is the number of days Advance Notice that the payer has to be given before a collection can occur. Another is whether the organisation wishes to have the same date every month or whether they wish it to vary each month according to how many days there are in the month. 

It is possible to have a ‘cut-off’ date as short as 5 working days prior to the collection date. If you are designing your Direct Debit processes and would like advice on how to achieve this, please contact us. Crucially of course, it is important to remember that often it is a configuration setting within the Leisure Management System and signing-up new joiners to pay by Direct Debit can happen uninterrupted throughout the time period!

This depends on the number of collection dates. Typically best practice is to submit an AUDDIS file eight (8) working days prior to the collection date. If there is one collection per month therefore, the organisation could choose to submit one AUDDIS file per month. Some organisations may choose to submit more often that this – for example, every week on a given day. Reducing the number of files submitted however can reduce costs associated with file charges; can ensure that there are fewer administrative processes to undertake and will result in fewer Input reports to check and action. Ultimately it could depend on the number of transactions within the files. An organisation might choose to submit AUDDIS files frequently if there are a large number of sign-ups, but if files contain relatively few transactions, it may be more cost-effective and time efficient to submit these on a given date, prior to the collection date. 

The Service Users Guide and Rules state “If the payer approaches the service user directly regarding an error, the service user shall refer the payer to the paying PSP (the bank)”. This is because, under the terms of the Direct Debit Guarantee, a payer is entitled to an immediate refund – from their bank – if an error is made (relating to the amount or date). 

The rules expand on this, advising “Providing a refund to the payer directly could lead to the payer obtaining the refund twice i.e. once from the paying PSP and once from the service user. Should this occur the service user would have to contact the payer for repayment of the duplicated amount”.

If, instead of a single item being in error (as above), the Service User realises that the majority of the file submitted to Bacs contains errors, a different approach is required. In this scenario, Service Users should contact their sponsoring bank to advise them of the issue and to take direction from them. The organisation will typically return the payments (either by Direct Credit, or Faster Payment) and will need to advise the payers of the situation. Prompt action and effective communication, undertaken with agreement from the sponsoring bank, will limit the impact of such, hopefully rare, scenarios.  

If you are notified via an ARUDD Report, (Advice of Returned Unpaid Direct Debits) that a Direct Debit has been returned unpaid, you will have been provided with a reason code to explain why. It is important to understand how to respond to these reason codes. Some are ‘permanent’, e.g. if you receive a reason code 2, “Payer deceased”, there is no point attempting collection again. Some are temporary however eg reason code 0 “Refer to Payer”. In this instance you may wish to contact the payer to learn more or to represent the transaction. If you are advised that the payer has cancelled with reason code 1 “Instruction cancelled” it would be worth reviewing your  ADDACS Report (Advice of Direct Debit Amendments and Cancellations report). This could indicate if it was the payer or their bank who cancelled. The conversation you may choose to have with the payer would be different depending on this answer. Other reason codes can be provided and you can read more about what they mean on our website.

Best practice is to generate the Bacs files for collection, as close as possible to the submission date. The file would then be submitted to Bacs and processed as per the Bacs 3-day cycle. This allows for all the updates from Bacs reports to be applied to the database before the file is created. In turn, this ensures the highest possible success rate of transactions.  It is possible however to generate and submit files to Bacs in advance. They can be sent to Bacs up to 30 days in advance of the processing date. This does mean though that updates and cancellations could be received after the file is submitted which in turn could lead to higher failure rates.  

Reports, generated by Bacs, provide Service Users with relevant information about Direct Debit Instructions and Collections. Key reports include:

• ARUDD Report – Advice of Returned Unpaid Direct Debit Report. This tells you what Direct Debits are returned unpaid and gives you reasons why the failures occurred. This means that you know what actions to take to recover money owed and to prevent future failures.
• ADDACS Report -Advice of Direct Debit Amendments & Cancellations Report. This report tells you about changes to your Payers information such as change of bank details or name, helping you keep your database up to date.
• AUDDIS Report – Automated Direct Debit Instruction Service Report. This advises if new Direct Debit Instructions cannot be set-up for any reason and tells you why not.

Your Leisure Management System may be able to consume the above reports automatically – using .xml formats. There are other reports such as the Input report, the Acceptance reports and DDIC (Direct Debit Indemnity Claim) Reports. These are often dealt with manually. It is the responsibility of all Service Users to action the information provided in the Bacs reports “immediately or within 3 working days”.

In order to gain approval to collect Direct Debits an organisation has to be sponsored by their bank. Part of the undertaking is agreeing to follow the Service Users Guide and Rules to the Direct Debit Scheme. This document contains approximately 170 pages of rules and advice that organisations should follow. In order to be compliant and ensure a secure and efficient Direct Debit scheme, it is important to be aware of the rules and responsibilities. Training can help. 

All team members involved in the Direct Debit process would benefit from training. This would include team members involved in signing-up new members; those undertaking administrative tasks such as creating, checking and submitting Bacs files and those who deal with Bacs reports, rejections and unpaid items. It could also be beneficial for team members in the finance department who deal with reconciliation of the bank statement, those involved in compliance and risk and even those in IT.  Different courses are on offer depending on the depth and focus required from training and you can read more details on our website about training options.

Team members involved in the Direct Debit process can directly impact both the organisations income and also, the company image and customer experience. Getting the process right therefore is key!