How long should you store a Direct Debit Instruction?

What is a Direct Debit Instruction?

A Direct Debit Instruction (DDI) is the authority given by the Payer to enable an organisation to collect Direct Debits from their (the Payer’s) account. This DDI can be collected using a paper form that the Payer signs and returns to an organisation, or if the Service User Number is enabled for Paperless Direct Debit (PDD), the authority can be taken without the Payer having to fill out a paper form, (e.g. via the telephone, Internet or face-to-face).

Once obtained, the DDI can be lodged in one of two ways. In a manual system, the DDI would be posted to the Payer’s bank, who will lodge(set-up) the Direct Debit Instruction against the customer’s account. For organisations operating this way, there is no DDI to store. With AUDDIS, the Automated Direct Debit Instruction Service, the DDI is lodged electronically with Bacs, meaning that the organisation then needs to decide how to store the paper Instruction.

How long should the Direct Debit Instruction be retained by the organisation?

So, for how long should the Direct Debit Instruction be retained by the organisation? Well, if the authority is obtained via a Paperless Direct Debit system, this is a redundant question as there is no form to retain. Whilst the authority is just as valid via a paperless sign-up method (assuming that correct, approved scripts are used to walk the Payer through the sign-up process), there can be implications using this approach that an organisation should be aware of.

One of these, for example, relates to Indemnity Claims. If an Indemnity Claim is raised by a Payer who states that they didn’t give their authority for the Direct Debit to be taken, there is no signed form that can disprove the claim. Having said that, most organisations that operate a Paperless Direct Debit system will still receive some paper DDIs; for example, if a Payer is unable to give authority independently/the account requires dual authorisation, etc.

The Direct Debit is covered by the Direct Debit Guarantee

A paper Direct Debit Instruction can be retained as proof that authority has been duly given by the Payer for the organisation to collect the Direct Debit. For this reason an organisation might decide to keep the DDI for at least as long as the contract exists to supply the Payer with the goods or services for which the Direct Debit is paying – whether this is one year or twenty years! Unlike other payment forms, however, the Direct Debit is covered by the Direct Debit Guarantee. The Guarantee is unlimited in time or amount.

This means that a Payer could theoretically decide to claim back their money at any time and the DDI could therefore be required as proof in a counter claim – at any time. Organisations may therefore decide to keep the DDI for longer still.

Consider risk within your sector

Another factor the organisation may consider is a risk within their sector. Charities may consider that their donors are less likely to claim money back under the Direct Debit Guarantee than in other, higher risk areas, such as debt repayment, for example. This may or may not be the case but it is a factor that often can influence policy. Organisations may decide that even if a claim was made and a valid DDI held, the organisation might not counterclaim.

Other factors to consider include the organisation’s position on holding customer details/data protection issues, as well as archiving/storage of business documents. External auditors could also have an opinion. Often we find that it is not just the team responsible for the Direct Debit system that has a say in how long the DDIs should be retained.

There is no official answer

Ultimately, there is no official answer. Bacs does not provide a default time period that they advise a DDI be retained for, so it is up to the individual organisation. One point to note, however, is that Bacs do state that … “the paying bank may request a copy of the Payer’s authority before refunding the Payer, although there is no requirement for them to do so. This must be provided in accordance with the AUDDIS requirements”. If the bank requests to see a copy of a Direct Debit Instruction (due to an Indemnity Claim raised), and the organisation is unable to produce this, the organisation must accept the risk that they will be unable to counterclaim.

Ultimately the decision about how long to retain the DDI is made by the organisation, but if you have questions about this or other Direct Debit issues, please contact us and we will do our best to help.

We also offer Bacs Accredited Training or Consultancy to enable you and your staff to be confident your Direct Debit Scheme is operating effectively to serve you and your customers. Contact us to discuss how we could help.