Before payment is collected, or a Direct Debit mandate is given the green light, they must be submitted to the banks through Bacs – the UK scheme behind automated payments. This is a process also known as bank transfer.
What is Bacs?
Bacs is the most popular method for UK businesses to send and receive Direct Debit payments. Bacs oversees all aspects of the Direct Debit scheme, from the scheme rules, to the processing of payments. You can find more information about Bacs here.
Bacs approved software
In order to collect payments, you will need Bacs approved software. This is software which Bacs have assessed using rigorous testing and has met certain quality standards.
The main piece of software used in Bacs payments is Bacstel-IP, which is a secure access channel only in the UK. It’s used for submitting Direct Debit payments directly into the Bacs system. The software is an online submission channel which is safe, secure, and resistant to data tampering.
The Bacstel-IP channel is only used by businesses which are direct submitters – those which create payment instructions, create their own payment files and submit to Bacs directly, instead of using a bank or a commercial bureau to do it on their behalf.
To submit payments and process payment reports using Bacstel-IP, a business will need to use only Bacs approved software.
The criteria for passing Bacs quality standards includes:
|Ease of use and secure connectivity|
|Mandatory inclusion of validation routines – must validate bank account data prior to the submission of a payment request or report|
|Compliance with the Secure Socket Layer (SSL) security standard|
|Compliance with Bacstel-IP interface for digital signing|
A full list of organisations with Bacs approved software can be found on the Bacs website. These organisations include:
|AccessPay||Accountis (Fundtech FSC Ltd)||AEP||APT||Bottomline Technologies||Cashbook Ltd|
|Data Interchange Plc – SmarterPay||Elseware||Experian||FIS||Grange IT Limited||Interbacs|
|Microgen||Mosaic Software||SAA Consultants Ltd||Unified Software||V1 Limited||WPM Education|
Before submitting a payment request…
Before submitting a payment request, you must send advance notice to your customer that you are going to collect money from their account. Advance notice must be sent when:
- A customer has signed a Direct Debit mandate – you must confirm a regular payment date and frequency (i.e. the 1st of every month)
- Changes are made to the collection amount or frequency
Submitting information to bacs
To submit a new Direct Debit Instruction (DDI) or payment requests to Bacs, businesses must upload an Input File. What belongs in this file depends on the type of submission, but the process is consistent and very simple.
1. An input file is created
This file needs to use the correct structure (more detail on this below.) Direct Debit Instructions and payment request submissions will need separate files.
2. The file is uploaded using Bacs approved software
Using Bacs approved software makes the Direct Debit system more secure.
3. Bacs creates an Input Report
After the report is created, Bacs will send this on to the submitter to confirm that it has received the contents of the Input File.4. The contents of the Input File are processed using the Bacs three day cycleAfter the report is created, Bacs will send this on to the submitter to confirm that it has received the contents of the Input File.
4. The contents of the Input File are processed using the Bacs three day cycle
Making sure you use the right transaction codes
Direct Debit mandates
DDI transaction codes are relatively simple as a service user only needs two actions: creation and cancellation. Both actions have a different transaction code.
|0N||Creating a new DDI or re-instating a DDI which was previously cancelled|
|0C||Cancelling an existing DDI|
Direct Debit payments
These codes are slightly more complicated as they depend on prior payment requests.
|01||Collecting under a DDI for the first time. Also used for any transfers, reinstatements, or amendments to the DDI (for example, if a payer updates their details)|
|17||Collecting standard payments under a DDI – the one that businesses should use for all regular payments|
|18||Retrying failed payments. This shouldn’t need to be used as it’s Bacs best practice NOT to use this code unless the DDI was cancelled after the failure. Businesses should submit a new payment request using the same transaction code used on the original, failed payment|
|19||Collecting final Direct Debit payments. The customer’s bank will mark the DDI as expired after this payment has been made|
The three-day cycle
After a business submits a Direct Debit request, payments are processed using the Bacs three day cycle. This system gives service providers some guidelines around when to expect certain steps to occur. Businesses can expect payments to be processed in three working days. After these three days, a payment can only be considered successful if no failure report is produced.
Day 1 – input
A payment request must be submitted to Bacs between 7:00am and 10:30pm. This is then sent to the relevant banks overnight.
Day 2 – processing
The relevant banks receive the message at 6:00am. The banks then prepare to respond. The customer’s bank would prepare to debit their account whilst the business’ bank would prepare to credit theirs.
Day 3 – entry
The banks action the request. The business’ bank credits their account and the customer’s bank debits theirs at the same time. If the payment is successful, this should be the last step. 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. If this is the case, the refund to the customer will usually also take three working days to clear.
For more information on the three day cycle, click here.
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