The Timing of Direct Debit

This comprehensive guide provides detailed information on the specific timings for Direct Debit payments and offers strategies for optimizing them. Discover everything you need to know about the timeframes involved in setting up a Direct Debit and processing the payment.

For businesses that require both regular Direct Debit payments and an immediate initial payment, we will demonstrate how to seamlessly combine Direct Debit with Instant Bank Pay to meet these requirements.

Within this article, you will acquire knowledge in the following areas:

How long does it take to establish a Direct Debit?

Once you have determined how your business can gain access to the Direct Debit scheme and have completed the necessary steps to begin accepting payments, you have made significant progress toward establishing a Direct Debit agreement with your customers.

Setting up a Direct Debit can be accomplished within minutes by utilizing the user-friendly GoCardless dashboard. However, it is essential to inform your customers in advance and understand the timings associated with the Bacs payment cycle, which are detailed below. These factors contribute to making Direct Debit one of the most secure, reliable, and trustworthy payment methods available.

Watch the brief video that provides an overview of Direct Debit:

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Prior notification

Except for the following circumstances, it is necessary to inform your customers before submitting a payment to be collected through Direct Debit. Typically, 10 working days' notice is required, although this period can be reduced through agreements with your customer and your bank.

Notable exceptions to this requirement include:

• Explicitly authorized payments, where a customer grants permission for a specific payment to be collected immediately. This authorization is applicable to a single payment only.

• Fixed payment schedules, where a customer has already been notified of the date and amount of each payment. For instance, they may have been informed that £10 would be collected on the 1st of every month.

For more details, consult our guide onpayment processing.

How to efficiently collect Direct Debit payments using GoCardless

1. Sign up for your free GoCardless account, access the intuitive payments dashboard, and connect it with your accounting software if applicable.

2. Conveniently establish and schedule Direct Debit payments through payment pages integrated into your website's checkout or secure payment links.

3. From now on, you can count on getting paid on time as GoCardless automatically collects payments on the designated dates. It's that simple.

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With GoCardless, prior notice is only required three days in advance, allowing for increased flexibility

GoCardless presents an economical and effortless Direct Debit service that handles advance notice on your behalf. We guarantee the delivery of accurate information to the appropriate individual at the correct time.

Click this link to acquire comprehensive knowledge about the numerous benefits of collecting Direct Debit payments with GoCardless.

Once the banks receive the Direct Debit payments, they undergo processing via the Bacs three-day cycle. In order for a payment to be deemed successful, no failure report should be received several days later due to the unique nature of Direct Debit transactions.

Extensive details regarding the optimized collection timeframe are provided below, but as a summary:

• If there is already an existing Direct Debit mandate, the payment will be collected two working days after submission, considered 99% confirmed after three working days, and entirely confirmed after four working days.

• If a new Direct Debit mandate needs to be established, the payment will be collected four working days after submission, considered 99% confirmed after five working days, and entirely confirmed after six working days.

The crucial factor in comprehending the timing of both payments is the Bacs three-day cycle, which will be explained below.

The Bacs three-day cycle

All Direct Debit processes operate based on the Bacs three-day cycle. Developed in the 1970s, this cycle specifies the timeframe within which banks must respond to interbank requests.

• Working day 0 (submission): Between 7:00am and 10:30pm, a message (such as a payment request) is submitted to Bacs. Bacs then distributes this request overnight to the relevant parties.

• Working day 1 (processing): Upon receiving the message at 6:00am, the relevant parties make preparations to respond. For instance, your customer's bank will arrange to debit their account.

• On the second working day, all parties involved must take the necessary action. For instance, the customer's bank will debit their account, while your bank will simultaneously credit yours.

The Bacs three-day cycle is utilized for the collection of payments through Direct Debit, the establishment of new Direct Debit Instructions, as well as the notification of any payment failures to the merchant. By linking multiple three-day cycles together, you can achieve the most efficient timeline for collecting payments through Direct Debit.

Require faster payment than three days?

Instant Bank Pay provides immediate account-to-account transfers, ensuring swift and secure payments. It can be seamlessly integrated with Direct Debit to allow for an initial payment to be collected instantaneously before the first recurring payment is processed.

A single Bacs processing cycle is employed for collecting payments based on existing Direct Debit Instructions. Therefore, the collection process takes two working days:

However, it is crucial to comprehend what occurs in the event of a payment failure.

Due to the nature of Direct Debit, even failed payments will be credited to your account on the second day.

If the customer’s bank determines that the payment should not have taken place (for example, if the customer's account was overdrawn), they will inform your bank to reverse the payment.

Notifications of payment failures are transmitted via an additional Bacs three-day cycle, and typically, the customer's bank will submit this notification on the second working day (the day the payment was scheduled):

However, in approximately 1% of cases, the notification is only submitted the following day. In such instances, the merchant's bank receives it four working days after the payment was initially submitted:

If a failure notification is received, the payment will be automatically reversed. Consequently, a payment cannot be regarded as complete until no failure notification is received on the fourth day.

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In the event that you do not already possess a mandate with your customer, it is necessary to establish one before the collection of payment can take place. This procedure adds an additional Bacs processing cycle. Taking into consideration the 1% of cases in which failure notifications are submitted late, collection through confirmation will require six working days:

As mentioned previously, once a mandate has been approved on day 2, payment requests can be submitted. It is explicitly prohibited by the scheme to submit a payment request before this point, for example, on working day 0.

Numerous businesses encounter difficulties with these initial lengthier timeframes when setting up a new customer with Direct Debit.

To address this problem, GoCardless seamlessly merges Instant Bank Pay with Direct Debit. This combination allows for an instant initial payment and ensures reliable recurring payment collection through Direct Debit.

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Find out more about Instant Bank Pay and Direct Debit.

It is important to note that funds are not collected on non-working days or weekends, allowing you to optimize your collection schedule.

Bacs provides a list of working days for the Direct Debit system in their annual Bacs processing calendar. Submissions to the banks cannot be made on non-working days, and the banks themselves will not process any Bacs messages on non-working days.

This means that Direct Debit payments are not processed on weekends or bank holidays. If a payment date falls on a Saturday or Sunday, it will be processed on the next working day. For more information on Bacs payments made on Fridays, click here.

Although the banks do not operate on non-working days, it is possible to receive messages they have sent previously. For instance, payment failure reports that are distributed overnight on a Friday can be downloaded on a Saturday morning.

The Direct Debit instruction will remain in effect until either you or your customer cancels it by contacting your respective banks or payment providers. GoCardless offers a merchant dashboard that allows you to easily set up and cancel payments with just a few clicks. Additionally, GoCardless merchants receive notifications if a Direct Debit is cancelled by the customer at their bank, providing insight into payment collections and advance notice of any potential issues.

However, if a Direct Debit becomes inactive and no collections are made for an extended period, typically 13 months, the Dormancy Period Rule will take effect. After this time, the Direct Debit Instruction is removed from the bank's system. To resume payments, re-authorization from your customer is required.

Payment timings with GoCardless: GoCardless processes all Direct Debit payments according to the optimized timetable mentioned above. Therefore, payments will arrive in your account after 5 working days, or 6 days if no mandate exists.

Discover more about collecting Direct Debits with GoCardless by clicking on this link: Find out more.

With GoCardless, we take care of the entire Direct Debit process for you, handling all the heavy lifting. For businesses looking for faster payment times, we offer a comprehensive payment solution that combines Instant Bank Pay with Direct Debit. Read the following case study to see how combining these two solutions can enhance payment collection.

Case study: merging immediate and recurring payments

Direct Debit offers numerous advantages as a payment collection method for many UK SMEs:

• Cost-effective transaction fees
• Extensive automation that eliminates late payments
• Robust consumer protections for customer peace of mind

However, one issue that has posed challenges is the three-day payment cycle, which can be problematic for businesses requiring instant or next-day fund clearance.

Gravity, a trampoline park business, previously accepted both card payments and Direct Debits. However, card payments resulted in high transaction fees, and Direct Debits took too long to clear the first payment, allowing customers to use the service and cancel their mandate before any payment was debited.

GoCardless offered a solution by combining Instant Bank Pay and Direct Debit. This enabled Gravity to receive an initial payment instantly and continue collecting future payments reliably through Direct Debit.

As a result of implementing Instant Bank Pay, Gravity achieved the following benefits:

• Prevented subscription cancellations and subsequent revenue loss
• Saved 50% on transaction fees
• Reduced customer sign-up time by 55%
• Encouraged 90% of new customers to utilize the Direct Debit and Instant Bank Pay combination
• Streamlined and expedited the sign-up process for customers

To learn more about how Gravity utilized Direct Debit and Instant Bank Pay, watch the short video provided.

Discover how to effortlessly combine recurring payments with Instant Bank Pay to collect instant and recurring payments in a fast, simple, and convenient manner.

Frequently Asked Questions: Direct Debit Timings

Direct Debits follow a three-day Bacs cycle, requiring a minimum of three days for clearance. Delays in clearance can occur due to the batched transmission of Direct Debit files.

How long does it take to set up a Direct Debit?

The setup of a Direct Debit can be swift if your customer promptly responds and returns the authorization mandate on the same day it is received. In such cases, the payment can be set up within one day.

However, the processing of a new mandate may take up to six days, resulting in the first payment being cleared within that timeframe.

For businesses requiring instant payment, GoCardless offers Instant Bank Pay.

What time do Direct Debits go out?

Typically, Direct Debit payments are debited from an account between 1am and 7am. However, in reality, Direct Debits can be deducted at any time of the day. The timing of funds being debited and credited depends on the submission of Direct Debit files in batches.

If you are awaiting a Direct Debit payment, GoCardless merchants can utilize the merchant dashboard to monitor the payment's status.

GoCardless simplifies Direct Debit acceptance. Automate payment collection. Reduce manual administration. Get paid on time, every time.