Dec 16, 2019

What to do if a Direct Debit payment fails

One of the many benefits of Direct Debit is that payment failure tends to be lower than credit cards. In fact for SmartDebit customers, failed payments typically sit below 0.5%, whereas credit card decline rates can be as high as 15%. That being said, Direct Debit isn’t infallible and when payments do fail it can have a significant impact on your business, disrupting cashflow and tarnishing customer relationships. Here’s how to deal with a failed Direct Debit.

 

Why Might a Direct Debit Payment Fail?

When a Direct Debit payment fails, as a service user you’ll receive a notification via an ARUDD (Automated Return of Unpaid Direct Debit) report, citing a reason for the failure. The most common reasons are insufficient funds or where a payer has cancelled their instruction. Other reasons include:

  • The account has been closed, transferred or is not recognised
  • There is a dispute from the payer, such as the amount or due date
  • The payer has deceased
  • There is no Direct Debit Instruction in place.

 

How to Deal with a Failure

When a Direct Debit collection fails, you can try and collect the payment again. This is known as re-presenting. However, before trying to re-present, it’s important to understand why the failure happened in the first place, using the reason code in your ARUDD report as a starting point. A re-presentation should only then be made if the collection is likely to be successful. Otherwise, it wastes time and money. If you do decide to re-present, here’s the criteria you have to meet:

  • The re-presentation is within 30 days of the original collection date
  • The Direct Debit has not been cancelled since your last collection
  • It is not past the end date of the payer’s Direct Debit collection schedule
  • The code returned in the ARUDD report is not ‘No Instruction’ as this implies no instruction is held at the paying Payment Service Provider. A dormant Direct Debit can be resubmitted, but this needs to be identified to your bureau and resubmitted to Bacs.
  • It is identified as a transaction code 18.

Thankfully, the success rates of collecting failed Direct Debit payments is high and over double that from a credit card. In fact, Chargebee showed that an average of 25% of payments were recovered through dunning. By comparison, SmartDebit customers achieved an average 52% success rate when re-presenting Direct Debit payments.

 

Interested in learning more about SmartDebit’s high payment success rates for organisations using Direct Debit? Contact Us to find out more.

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