Dealing with Unpaid Direct Debits Efficiently

Blog by Sarah Cottee, Training Manager

ARUDD reports

When you experience unpaid Direct Debits you will be notified of this on an ARUDD report (Automatic Return of Unpaid Direct Debits). This report is usually available to Service Users one or two days after the day that Direct Debits are due to be collected. On the day that the money is due to be taken from the Payer’s bank account, the paying bank will check a number of factors to ensure that the Direct Debit is correctly paid or unpaid. If there are unpaid Direct Debits, there are a number of different reason codes used in the report depending on why the transaction cannot be completed by the payers bank or by Bacs.

common reason codes, what they Mean & What you should do

Refer to payer

This code accounts for approximately 80% of unpaid Direct Debit returns. This may mean that there are insufficient funds in the payers account, however this cannot be assumed as there could be a number of other reasons why this occurs. The term “Refer to payer” simply means that the payers bank is not in a position to pay the Direct Debit. Depending on the circumstance it is sometimes possible to represent an unpaid item which is good news for service users. There are however specific rules around doing this and “Refer to payer” is the only reason code where you can represent the Direct Debit i.e. attempt to collect again.

How many times can you represent?

A lot of service users are surprised to find out that you can actually represent unpaid Direct Debits as many times as you like, though it does have to be within one month from the original processing day. You should be realistic however about how many times would be acceptable to the payer. The majority of service user attempt to collect again once or twice at the most.

How can I increase my chances of a successful representation?

It is recommended that if you are going to represent unpaid Direct Debits, you should give the payers 5 working days’ notice before you collect again. It is beneficial to do this as if you inform the payer in advance they may be more likely to put money in their account to cover the collection if required.

What transaction code do I use when representing a Direct Debit?

The answer is Bacs code 18 should be used. Something we are often asked is: “Can I not just send the transaction with a code 17 like all my other ongoing collections?”. You could and it may collect successfully but it is advised you should use a code 18 so if the payer raises an indemnity claim against you then the code 18 will highlight to the bank that you are just collecting the same amount again.

Instruction Cancelled

This accounts for approximately 15% of all unpaid Direct Debit returns. This means the Instruction has been cancelled by the payer or by the payers bank.

What should I do if I receive instruction cancelled?

Service users must liaise with the payer to agree the payment method for the collection of any outstanding balance.

A payer can cancel a direct debit with their bank without advising you that they have done so. This is a vital part of the Direct Debit Guarantee which supports customer confidence in the direct debit system. However, it can cause issues for you as a Service User if the customer has not also advised you of the cancellation. Cancellations are notified to Service Users in the ADDACS (Amendments & Cancellations ) report, so it’s worth making sure your organisation keeps on top of all reports on a regular basis i.e. once everything three working days.

Other reasons codes: No account and No instruction.

These reason codes are much more likely if you are not using AUDDIS instructions and migrating to AUDDIS therefore is likely to result in fewer failures. The rationale behind each of these reason codes and the appropriate actions to take in response to them are all detailed on our Clear Direct Debit Training course.

If you would like to know more about attending our Bacs Accredited Direct Debit Scheme training or have any questions at all please feel free to contact the team on 01737 826 957 or alternatively you can email us info@cleardirectdebit.co.uk.