Once a business has submitted a payment request to the banks, the request follows some set steps before processing. This can take a few days, so it’s important to know what exactly these steps are and how to optimise them.
Advance notice of payment
Even though the customer has given permission for your business to take payments from them via Direct Debit, you still have to give “Advance Notice”. This is normally 10 working before a payment is to be taken, although you can agree shorter notice periods with the customer and your bank.
Exceptions to this rule are:
Taking an immediate payment
You do not need to give advance notice if a customer has explicitly stated that they want a payment to be taken immediately.
Taking regular payments of a fixed amount
If the business is taking regular payments where the amount collected does not change, then you only need to send a single payment notification.
For more information about how to take payments, please see our guide on taking customer payments by Direct Debit.
What happens after payment submission?
Direct Debit payments are processed using the Bacs three day cycle, after which a payment can only be considered successful if no failure report is produced after a set number of days.
The Bacs three day cycle
Designed in the 1970s, the Bacs three day cycle sets out the timescales which banks must use to respond to input from each other. In other words, the cycle is a framework which allows banks time to process requests whilst making the process predictable and transparent for businesses. All Direct Debit banks must operate using the Bacs three day cycle.
The three day cycle is used for collecting Direct Debit payments, setting up new Direct Debit Instructions, and for telling the merchant if their payment has failed.
Day 1 (submission)
A payment request is submitted to Bacs between 7:00 am and 10:30 pm. The request is then sent on to the relevant banks overnight.
Day 2 (processing)
The banks receive the message at 6:00 am and then prepare to respond. The customer’s bank prepares to debit their account whilst the business’ bank prepares to credit theirs.
Day 3 (action)
The banks action the request, with business’ bank crediting their account with the customer’s bank debiting theirs at the same time.
What payment timeline should I expect using an existing Direct Debit Instruction?
This differs a little from the standard Bacs three day cycle. A single Bacs processing cycle is best for collecting payments against an existing DDI, and this usually takes two days.
Payment request submitted.
The customer’s bank receives the request.
The merchant is credited with the payment.
If the payment is successful, this should be the last step. But if a payment fails, then it’s important to know what happens. Even payments that have failed will be credited to your business’ account, as that’s simply how Bacs processes it. If the customer’s bank thinks that payment should not have occurred then they will notify the business’ bank to try to get the payment reversed. Failure requests follow an additional Bacs three day cycle, which generally is started on working day 3 (the day on which the payment was due.)
Payment failure submitted. This starts the additional three day cycle.
The business receives the payment failure notification. This warns the business that the payment did not pass the process and that the customer’s bank wants to reverse the payment.
The payment to the business is to be reversed.
In the very rare 1% of cases, the banks only submit the notification the following day. This means that instead of receiving the notification 3 working days after submission, the merchant’s bank receives the notification 4 working days after submission.
What payment timeline should I expect using a new Direct Debit Instruction?
If you don’t already have a DDI set up with your customer, you’ll have to set one up before submitting a payment request. This adds some time to the payment cycle.
Direct Debit Instruction created.
Customer’s bank receives the mandate.
The mandate is approved by the customer’s bank and payment request submitted.
Customer’s bank receives the payment request. If this is unsuccessful, the merchant’s bank will be notified.
If successful, the merchant is credited with payment.
If the payment fails, the failed payment is submitted.
If the payment has failed, the merchant receives a failure notification.
If the payment has failed, the payment to the merchant is reversed.
DFC is part of Transaction Services Group (TSG), a leading revenue management solutions provider across Australasia, the UK, Europe, and the USA. DFC offers a full revenue management service across the customer journey. Its purpose is to drive up customer acquisition as well as manage and maximise customer revenue.
As Direct Debit experts, DFC takes pressure off organisations by handling billing, customer service and credit control, whilst offering cutting-edge solutions that benefit businesses and customers. DFC reduces the Direct Debit joining process to just three minutes for customers, whilst increasing the average length of membership by three months.
For more information on how DFC can help your business, visit debitfinance.co.uk