In the second instalment of our Direct Debits Explained series, we look at how to take Direct Debit payments in more detail. We outline the two main options available – direct and indirect access to Bacs. And explore the pros and cons of each depending on the size of your organisation and how you choose to operate.
How To Take Direct Debit Payments
A Direct Debit is a bank-to-bank payment method that provides an easy and reliable way for businesses to collect recurring payments. To learn more about this payment method check out Direct Debits Explained: An Introduction.
Once you have decided to collect payments from customers via Direct Debit, you need to identify the best way for your operation to access the Direct Debit Scheme. There are 2 options to access the scheme and submit your payment data to the Bacs service – direct access and indirect access.
Taking Direct Debit Payments Option 1: Direct Access
Direct access is typically only available to larger organisations choosing to manage Direct Debit collections in-house.
Direct submitters can initiate payment instructions, create payment files and submit directly to Bacs. While becoming a direct submitter ensures the lowest transaction fees, achieving direct access can be challenging and managing collections time consuming.
To access the scheme directly, you will need to consult your bank to apply for a Service User Number (SUN). The process of applying to become a direct submitter can take some time. Your bank will assess whether you meet the required criteria with checks for integrity, financial standing and administrative capability. Typically, organisations with a modest turnover will not be accepted to become a direct submitter – banks can require a minimum annual turnover of as much as £1 million.
Once successful, you will be given a SUN, advised on the facilities required to access the service and provided with the Scheme Rules and procedural information. You will need to put in place an appropriately experienced team. And select a Bacs-approved Direct Debit management software to collect, store and submit correct payment information.
As well as the initial set up cost, you can expect ongoing maintenance charges, transaction fees and licence costs for your Direct Debit Management software. This is where economy of scale comes into play. For those processing high volumes of Direct Debit payments, low transaction fees make up for high overhead costs of set up and ongoing operations.
Taking Direct Debit Payments Option 2: Indirect Access
When considering how to take Direct Debit payments, indirect access is often the most suitable method for many organisations including those that are smaller. Indirect submitters use a payment service provider or Direct Debit bureau to submit payment files to Bacs.
According to Bacs, over half the organisations collecting by Direct Debit choose to make their payment submissions via an approved bureau rather than directly. Bacs approved bureaus are inspected by Bacs to ensure the scheme standards are consistently met. Harlands Group is a Bacs approved bureau, as well as being an FCA authorised payment institution, and will submit and manage payments on your behalf.
Typically, in this scenario, payments will be collected using the bureau’s SUN. This means the bureau name will show on customer bank statements. For example, customers of clients who work with Harlands in this way will see Harlands on their bank statements.
As well as suiting many smaller or medium sized organisations, this can be a faster way to take Direct Debit payments for larger organisations.
Even if you have your own SUN, you may choose to work with a bureau to reduce internal overhead and optimise processes around Direct Debit collections. Bureaus can collect using your SUN, which means your organisation name will show on customer bank statements.
Read more on why organisations are looking to outsource membership payments: Is The Status Quo Your Biggest Threat?
Take Direct Debit Payments With Harlands
As an FCA authorised payments institution and a Bacs accredited facilities provider, we process over 2.3 million Direct Debits on behalf of our clients each month. Our flexible solution can be tailored to meet your needs, we do much more than just process your payments.
We work with your organisation to make a series of changes that stack up to fundamentally improve performance. We call this the Harlands Effect. Read Applying The Aggregation Of Marginal Gains To Increase Profitability to learn more.