We are often asked about the Bacs rules around re-presenting unpaid Direct Debit transactions. So here is a quick overview of the subject.
What is a re-presented Direct Debit?
A re-presented Direct Debit is a Direct Debit that an organisation (the Service User) tries to collect, after it previously being returned unpaid by the bank.
Why do Direct Debits get returned unpaid?
As a payment method, Direct Debit enjoys a high success rate. On occasion however, some Direct Debit collections can be returned unpaid. This could be under the following circumstances:
- lack of funds in the payers account,
- because collection has been stopped by the payer before close of business on entry day (this could be for a range of reasons)
- because the account has been closed
- because the payer’s Instruction has been determined. e.g. death
- the lodgement of an arrestment or third-party debt order before close of business on entry day. (This was formerly known as a garnishee order)
In certain circumstances the service user could choose to re-present the unpaid Direct Debit.
In what circumstances would you re-present a Direct Debit?
The Bacs Direct Debit Scheme Rules highlight when a Direct Debit can be re-presented for collection. This is when the Service User can “reasonably assume that the conditions necessary for collection will be met”.
The Service User will therefore need to understand the reason for non-payment of the Direct Debit. Often this can be taken from the Advice of Returned Unpaid Direct Debits Report (ARUDD). Alternatively, the Service User may need to contact the payer for clarity.
- If the original Direct Debit was returned unpaid due to “Reason code 2: Payer Deceased” for example, the conditions for a successful future collection will NOT be met. Likewise, if the transaction was returned unpaid due to the Payer disputing the collection amount, re-presentation may not be successful. In this situation an alternative solution may be required.
- If however, the transaction was returned unpaid for “Reason code 0 – Refer to Payer”, it could be reasonable to assume that conditions would be met in future. This could be because the payer ensures there are funds in the account for example. In this case, a repeated attempt to collect could be successful.
What are the benefits of re-presenting Direct Debits?
Re-presenting Direct Debits can offer benefits for both the collecting organisation and the payer. For the collecting organisation, it might be a simple and relatively inexpensive way to increase the overall success rate of collections. It can reduce the admin associated with collecting outstanding amounts via other payment means and can secure cashflow.
There are also offers benefits for the payer. If the initial failure is due to a timing issue or lack of available funds for example, a second attempt to collect by Direct Debit could be preferable. The re-presented collection could mean that payers don’t have a debit on their account to subsequently have to settle. It might also mean that they can continue to enjoy access to the goods or services they have bought.
What rules must be followed when re-presenting a Direct Debit?
When re-presenting a Direct Debit, the Service User must ensure that:
- the amount of the re-presented Direct Debit is the same as that originally dishonoured
- it is identified by the use of transaction code 18. This code should be used whether the original Direct Debit was sent with a 01 code (for the first collection), a 17 code (to indicate an ongoing collection) or a 19 code (to indicate that it is the last in a series of collections).
How many times can a Service User try to re-present a Direct Debit?
The Direct Debit Scheme Rules state that re-presentation of an unpaid Direct Debit may continue for one month from the date on which first presentation was made. If payment has not been made within this period, the service user must make other arrangements directly with the payer for collecting the amount due.
Ultimately if a Direct Debit fails upon first collection, and, if it fails after a second attempt to collect, the Service User should consider how successful any subsequent attempts are likely to be.
Is authority required from the payer to re-present the Direct Debit?
The consent of the payer to debit their account, is expressed through their completion of the Direct Debit Instruction (DDI). This also constitutes implied consent to the re-presentation of an unpaid Direct Debit originated under that authority. Unless the payer has cancelled the Direct Debit Instruction, the consent of implied consent means that the initial authority is still valid.
Does the payer have to be notified of the attempt to recollect the Direct Debit?
It is not mandatory to notify the payer of the attempt to recollect the Direct Debit. It is recommended however that the payer is notified and that they are given 5 working days notice (which is often shorter than the most typical Advance Notice period of 10 working days).
Still got questions?
If you have questions about whether re-presenting Direct Debits is right for your organisation, please contact us. We will be happy to discuss the considerations with you and help you decide the best approach for your business.-