Information for companies considering using Direct Debit and Paperless Online Direct Debits as a payment option for their customers.
For many organisations, the first port of call for advice on how to take payments by Direct Debit is their bank so that they can sponsor them as a Service User to obtain a Service User Number (SUN) which gives them access to BACS Services. It often comes as a surprise to both small & large organisations that the process of obtaining a SUN from their bank can be significantly more difficult than first thought.
The reason for this is usually indemnity risk.
What is indemnity risk?
The Direct Debit Scheme gives Service Users the ability to debit their customers’ bank accounts, so in order to maintain the overall integrity of the Scheme, a guarantee is made by all of the participating banks and building societies; here’s a copy of the Guarantee:
The Direct Debit Guarantee
Indemnity risk revolves around the third point in the guarantee where, if an error is made in the payment of a Direct Debit, the bank will make a full and immediate refund of the amount debited. In essence, the bank account holder has been put in a very strong position – they are able to approach their bank at any time, and to some extent for any reason, to request that a single Direct Debit or sequence of Direct Debits be refunded. The customer's bank is more often than not, unlikely to check that the reasons for a reclaim are valid so fourteen days following the refund request being made, the total amount of Direct Debit(s) in question are automatically debited from the Service User's account.
For this reason, a sponsoring bank needs to limit its liability and will either need to see that the business or organisation applying for a SUN has been in existence for a good length of time, has a significant annual turnover, or alternatively puts a hefty deposit down to fund the potential indemnity claims if the organisation were to fail financially.
This is the point where many organisations give up on Direct Debit as a method of payment.
So how can a Direct Debit Management Company help?
A Direct Debit Management Company, most often an accredited BACS Approved Bureau, can usually offer two different solutions where an organisation hasn't been able to obtain a SUN; these are:
Why can a Direct Debit Management Company provide a service and not my Bank?
Your Direct Debit Management company has already been through the rigorous process of being allocated SUNs in the past and has a proven relationship with their bank. They will already have provided the bank with a significant amount of financial security in the form of bond or personal guarantee secured on an asset. By collecting on their own SUN or by applying for a Facilities Managed SUN on your behalf, the management company is accepting ALL of the indemnity risk that you purportedly pose to the bank. Of course, your provider may still need to mitigate some element of risk, whether this be by taking a deposit, restricting the value of collections either by total value or on a per transaction basis, or by holding a proportion of collections made over a period of months on account.
As you can see, if you are unable to obtain a SUN from your own bank, you may still be able to take Direct Debit as a payment method via a third party Direct Debit Management company or BACS Approved Bureau using one of the two methods described above.
Eazy Collect is a BACS Approved Bureau who have been helping companies manage and process direct debits since 2002.
Eazy Collect Services Ltd.