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When you run an eCommerce business, you rely on your online customers paying electronically for your online goods or services; cash is naturally not an option. Whilst you are likely to accept card payments through debit cards and credit cards, other options are open to you. You may, for example, allow customers to pay through popular payment methods such as direct debit, particularly if they get a regular product or service from your internet brand. If you do offer direct debit payment as a way of making regular payments, you will need to adhere to the direct debit scheme rules. This will ensure that you can successfully take your customers’ payments through direct debit transactions. This article will, therefore, explain four key points on direct debt collection rules for eCommerce businesses in the UK.
What Are the Direct Debit Collection Rules?
Direct debit collection rules are the rules that businesses have to adhere to when they take direct debit payments from their customers. You will be part of the Direct Debit (DD) scheme, which means you are a service user and need to access the BACS network to take payments by direct debit. As an eCommerce business, direct debit collection rules also apply to you when you accept direct debit payments from your online customers. Below, we look at key points you need to know about direct debit collection rules
1) Rationale Behind the Direct Debit Collection Rules
A key point to understand about the direct debit collection rules is why they are in place. The reason for their presence is to ensure good security when you take direct debit payments from your online customers. The security level comes from the use of the very secure BACS network. The direct debit collection rules ensure that business owners such as you:
- begin taking direct debit payments in a compliant way;
- correctly use the network; and
- ensure you are fair in the way you treat your online customers.
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2) Direct Debit Sponsors
You can only be part of the Direct Debit (DD) scheme if you have a sponsor. A sponsor’s role is to ensure the following:
- that direct debit is suitable for your business; and
- that you have the necessary procedures set up to ensure you take payments lawfully.
A sponsor is usually the eCommerce business’s bank. This must be a UK bank, as payments must come through from your online customers in sterling. You will have to sign an indemnity with your sponsor, which means you agree to pay them any losses they suffer due to your actions as the service user.
3) Direct Debit Forms
One of the direct debit collection rules is that your eCommerce brand, as a service user, must use specific forms to collect direct debit payments. These standardised forms are in place to ensure the following:
- that you can take payments from your online customers and their players by direct debit; and
- you give your direct debit customers specific information about their choice of direct debit payment.
You should note that there are rules about the wording you use in these forms to ensure you give customers the correct information.
It is up to your sponsor to approve your forms for every direct debit payment before you begin taking payments by direct debit. They may tell you to change them if you do not do them correctly. When you submit the forms to BACS, you must use an Automated Direct Debit Instruction Service (AUDDIS).
4) Changes and Rejections
A further key point to note about the direct debit collection rules for eCommerce businesses is the Automated Direct Debit Amendment and Cancellation Services (ADDACS). This is an electronic way of being informed that there have been changes to your online customer’s bank account details. It also lets you know if your eCommerce customers have cancelled their direct debit instructions.
Also, where your online customer’s bank rejects a direct debit, it will return back to you to notify you of this. As part of the direct debt collection rules, you must record rejections and find an efficient method of doing so.
This checklist will help you identify areas in your business that may need further protection or assistance to ensure you are legally compliant.
Key Takeaways
As an eCommerce business, you may offer direct debit payment as an option for your online customers. When a company collects payment by direct debit through the direct debit scheme, there are rules they need to abide by, such as the direct debit collection rules. This article has explained four key points about these. It begins by explaining the reason for the direct debit collection rules, which is to ensure security and compliance when you take direct debit payments. The article also points out that you must have a direct debit sponsor before you use the scheme. A further key point the article mentions is the rule that you must use specific forms to take the direct debit instruction and use particular wording on these. The article’s final point about direct debit collection rules is that you are required to record rejections and how you are told about cancellations.
If you need help understanding how the direct debit collection rules impact your eCommerce business, contact our experienced eCommerce lawyers as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
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