Also in the Direct Debit Resource Centre:
The Direct Debit Collection Process
The Advance Notice
Once a completed Direct Debit Instruction is returned to a collecting organisation, advance notice must be given of the Direct Debit that is to be collected. As with the Direct Debit Instruction (DDI), advance notice letters must be Scheme compliant and the formats being used must have been approved by the sponsor bank.
The bank account holder must receive an advance notice when:
Signing up to pay by Direct Debit
Changes are made to the amount
Change of due date
Providing Advance Notice is necessary to remain scheme compliant but it is important for other reasons as well, i.e. it allows payers to budget for the collections and question a collection before it is debited from their account. Failure to provide advance notice in these situations increases the likelihood that collections will fail (as there may not be sufficient funds in the account). It could also lead to customers cancelling Direct Debits because they believe the wrong amount has been collected or the payment has been collected incorrectly and it can affect the perceived professionalism of the organisation. It could also lead to an increased likelihood of indemnities being raised by dissatisfied customers. (More information in the Indemnity Claims section)
The notice period for advance notice is most commonly 10 working days plus postal time. This is the default that every organisation starts with although it is possible to agree different advance notice periods with the bank. Depending on your business, different lengths of time may be more / less appropriate, i.e. if you are a Boarding School, perhaps you would prefer to let parents know the amount to be collected for term fees for September, before the end of the summer holidays and therefore require a longer advance notice.
Collection must occur on or within 3 working days after the agreed date. Please note, this is 3 working days, i.e. does not include Bank holidays or weekends. If for any reason a collection run is unable to take place at the allocated time due to system failure or staffing issues, Bacs allow 3 working days as a reasonable time period within which the collection can then be taken. If the collection cannot be made in this timescale then a new advance notice must be issued.
Advance notice can be provided in a number of different ways: letter, invoice or statement, payment schedule or contract. The advance notice can be provided in hard copy or any electronic format, provided all of the mandatory inclusions are present.
The Bacs Processing Cycle
The Bacs processing cycle is a 3 stage process in principle. Stage One – Entry day. Submission of collections file via Bacstel-IP software, Bacs Bureau or Banking platform (online business banking) Stage Two – Processing day. Valid files processed, else rejected by Bacs (VOCALINK) with advice. Stage Three – Due Day (collection day). Money moves simultaneously, debiting the payer’s account and crediting the Service User. The stages above take place over 3 working days.
Input day is the latest day a Service User transmits automated data (either directly or via a bureau) to Bacs for a processing cycle. Payment files must be transmitted to Bacs between 07.00 and 22.30
All data accepted is processed (the working day before entry day). Files are delivered to the recipient banks which then process each payment.
All correctly addressed payments are simultaneously credited to the recipients’ accounts and debited from your account
Direct Debit collection steps:
A Direct Debit collection file is produced either by the user or by extracting the data from a main database.
The file is forwarded to Bacs either directly via Bacstel-IP or via a 3rd party (A Bureau via Bureau payments software or Bank through their internet banking).
Bacs receive the file and based on the sort code information, forward the request for payment to the payer’s bank.
Unless the item is being returned unpaid, the money is debited from the payer’s account and credited to the Service User’s account on the collection day.
The Unpaid Cycle
When a Direct Debit is not paid by the paying bank a reason code will be returned to Bacs on the day of presentation (Day 3 in the example below) *or exceptionally on the following working day via Bacs using ARUDD.
Service Users learn of failed direct debits via an ARUDD (Automated Return of Unpaid Direct Debits) report up to two days after the collection. The exact timing for receipt of this report can vary as it is dependant on the paying bank reconciliation timescales. However, this is never longer than 3 working days after the collection. The ARUDD report will inform you about which Direct Debits collections have failed and remain ‘unpaid’ along with the reason why this has occurred.
Day 3 or 5 Settlement, Due or Debit Date
Debtor Bank send an Returns message to Creditor Bank
Day 4 or 6
Debtor Bank send an Returns message to Creditor Bank
Day 5 or 7
Latest Returns Message by Debtor Bank
Day 6 or 8
Latest settlement of returns - CSM Credits the Creditor Bank
Two digit transaction codes are used to identify the type of payment being processed. Direct Debit collections use 4 different 2 digit codes.
Every Service User must identify a first collection and subsequent ongoing collections, therefore every Service User must use codes: 01 – first collection, 17 – on-going collections.
However not all Service Users will represent collections on receipt of an unpaid debit or are aware of a final collection prior to the collection being made. These codes should be used where possible: 18 – re-presentment, 19 – final collection.
The use of transaction code 18 can only be made within 30 days of the original collection date and must be for exactly the same amount as the previously unsuccessful collection. If an 18 is used, no advance notice is necessary. A Service User can represent as many times as is necessary within 30 days.