Direct debit has been around since 1970 and over the past fifteen to twenty years has become the preferred method of payment for recurring bills, subscriptions, and even business-to-business bills.
Access to Bespoke direct debit services is a challenge, especially for small and medium-sized companies with low to medium sales and startups with a short company history. Generally, companies in this position find that when they contact their bank to obtain a service user number to use direct debit, they face a firm refusal or onerous terms such as a substantial deposit as security.
The reason for the difficulty in obtaining bank funding to use the system is because of the home guarantee risk. Individuals and organizations who use direct debits for payments are protected by the guarantee, which gives great powers to the payer; If a direct debit has an error in the amount or date, an immediate full refund can be issued. claimed the bank.
This is great in terms of consumer confidence in the system, and that confidence helps increase consumer acceptance; However, the guarantee increases uncertainty among the organizations and sponsoring banks that collect the payments. In fact, there is no time or monetary limit on the direct debit rules, so a payer could easily ask the bank to request a single payment or a series of payments over many years.
The ability to claim many thousands of pounds means that a sponsoring bank could have a significant bill on its hands if a user of the direct debit service goes down and hundreds of payers claim their direct debit payments.
In today’s economic climate, banks have tightened their risk controls, which is why more and more companies are turning to payment service providers who specialize in providing direct debits. These providers effectively act as third parties handling direct debits on behalf of their customers. In addition, by requesting service user numbers from their sponsoring bank, they assume a large part of the risk associated with the direct debit guarantee.
Of course, these companies cannot take unlimited or unacceptable risk and therefore have to be managed very differently from a bank:
First, these companies classify the types of companies according to the risk they are taking; Services may be refused or additional conditions may be imposed for people with the highest risk category.
It is common for maximum transaction limits to apply: For example, a single direct debit cannot exceed a certain amount and an overall maximum amount can be used for collections over a period of time, usually one month.
If the limit is likely to be exceeded, most payment service providers show a certain flexibility in that they risk an appropriate deposit into the account or a percentage of the fees held for a certain period of time until the deposit is owed into a reserve fund. These credits can be checked throughout the relationship between the customer and the direct debit provider.
The popularity of direct debit shows that direct debit has become the preferred method of payment for both consumers and businesses. Although it is not easy or secure to access the system directly through a bank and BACS payment services, there are many payment service providers who specialize in direct debit services and can help you access this valuable payment method.