Failure Rates with Direct Debits
Failed Direct Debits typically account for 2% – 3 % on average, of all Direct Debit collections. This compares to a failure rate of 13% – 14% with card payments according to industry statistics. On balance that is good news for organisations that collect by Direct Debit!
According to research carried out by Bacs (Pay.UK) who run the UKs Direct Debit scheme however, failures can be costly to rectify. Bacs calculate that the cost of each failed Direct Debit collection could be up to £50 to repair! And this doesn’t take into account the effect on the customer experience. So why do organisations experience failed direct debits?
Reasons for failed Direct Debits
When a Direct Debit fails, Bacs will generate a report – called an ARUDD report – to tell you why. On this report, there are 12 different reasons that Bacs use to explain why the direct debit has been returned unpaid. They are:
0. Refer to payer
1. Instruction cancelled
2. Payer deceased
3. Account transferred
4. Advance notice disputed
5. No account or wrong account type
6. No instruction
7. Amount differs
8. Amount not yet due
9. Presentation overdue
A. Service user number differs
B. Account closed.
The most common reason for failure is called “Refer to Payer”. Most people understand this to mean that the customer has insufficient funds in their account. Whilst it isn’t always down to insufficient funds, this is probably the biggest contributor. Crucially, it is completely outside the control of the collecting organisation. Other common reasons are:
- “Instruction cancelled”
- “No Account”
- “No Instruction”
Many reasons for failed Direct Debits are avoidable. With a good understanding of the Direct Debit scheme and an efficient Direct Debit process, the collecting organisation should be able to avoid these issues and collect successfully. If your organisation’s failure rate is over 2% then its likely that it can be improved.
Improving Success Rates
Many reasons for failures can be permanently fixed and others can be avoided. This is provided that the team responsible for your Direct Debit collections have a good understanding of what these codes actually mean and what actions should be taken. Unfortunately, the majority of people responsible for collecting money out of our bank accounts have never had any formal training. Most have learned on the job or by trial and error, which can be a costly mistake.
If your Bacs reports contain failures other than “refer to payer” then your Direct Debit processes could almost certainly benefit from some improvements. So here is the principal way to avoid these mistakes…
Some organisations are either not aware of their Bacs reports or don’t take immediate action when receiving them. If the account doesn’t exist or has been transferred or the Direct Debit has been cancelled, you will have been informed before the collection was attempted. Keep your database up-to-date! Make sure that all Bacs reports are collected and acted upon straight away.
If you want to better understand the correct actions to take or how to make sure that you always get your Bacs reports, then Direct Debit Training will help. You can also read our blog which goes into further details about failures. If you are really struggling with unpaid items and still don’t understand why it is happening then we can have a look at your systems and process as part of a direct debit review. Either way, get in touch. We are here to help!