The Automated Direct Debit Instruction and Cancellation Service (AUDDIS) is a Bacs service enabling Direct Debit Instructions (DDI) to be electronically setup or cancelled at paying PSP’s by service users.

The AUDDIS service uses the following reference codes to convey instructions:

• 0N – New DDI lodged
• 0S – Conversion of all existing DDIs to AUDDIS
• 0C – Cancellation of an existing DDI

Bacs (Bankers’ Automated Clearing Services) is the organisation with responsibility for the schemes behind the clearing and settlement of UK automated payment methods Direct Debit and Bacs Direct Credit, as well as the provision of managed services for third parties.

Automated business payments are instructions sent from one party to a bank or building society to either take or make, a payment to or from another party. Easy to arrange and highly cost effective, Direct Debit and Direct Credit payments can be set up as a one-off payment or recurring payments, which can be particularly useful for paying suppliers and other bills. Bacs (Bankers Automated Clearing Service) is the payment company responsible for the United Kingdom’s widely emulated automated payment infrastructure.

Working in conjunction with 16 of the country’s leading banks and building societies, the Bacs network offers several services to assist businesses in making bank-to-bank payments. Collecting payments by Direct Debit and using Direct Credit to make payments is quickly becoming standard business practice in the United Kingdom. Current statistics published on the Bacs website indicate that over 3.6 billion Direct Debit payments are processed yearly and almost 90% of the UK employees, are now paid by Direct Credit.

It’s easy to see why the use of automated business payments has grown enormously in popularity over the last few decades. Not only is the increased usage across all industry sectors reflective of the availability and affordability of modern payment solutions, but even more so, it is reflective of the many additional benefits they can bestow.

Proven business benefits include:

• Streamlined business processes
• Enhanced profitability
• Reduced manual business costs
• Real-time visibility of payments
• Improved cashflow management

Useful Links:

• Bacs Schemes
• Bacs Approved Services
• Bacs Resources

The Bacs Approved Bureau Scheme is for organisations that submit transactions through the Bacs Payment System on behalf of third party organisations.

The Third Party Assurance team at Pay.UK review the appropriateness of all bureaux to ensure they meet the standards set by the Scheme.

Over half of the organisations using the Bacs service make their Direct Debit and Bacs Direct Credit payment submissions through approved bureaux rather than submitting directly via the Bacs Payment System.

Organisations choose to use a Bacs approved bureau for a number of reasons:

• They may only make a small number of Direct Debit and Bacs Direct Credit transactions each month
• They might be unable to fulfil all of the criteria to be able to make direct submissions themselves via the Bacs Payment System
• They may be a newly established organisation
• They might be a small to medium sized enterprise (SME) with a relatively low turnover.

But, whatever the reason, with approximately 700 approved bureaux throughout the world, accessibility to Direct Debit, Bacs Direct Credit and Faster Payment services is greater than ever before.

The Bacs Direct Debit and Credit payment cycles takes less than three days to complete and involves three stages; the input, processing and entry stages.

Simple and efficient, payment instructions are inputted on the first day of the cycle and processed overnight for distribution to banks and building societies on the second day. On the third, customer accounts are debited whilst your account is credited with the appropriate amounts.

The Bacs Payment Cycle also recognises the need for flexibility in modern business transactions and allows you to:

• Submit Direct Credit payments up to 30 days in advance of the payment date.
• Recall payment submissions after the payment information has been submitted in certain circumstances.

Working alongside your existing accounting, payroll or membership management software to send electronic payment instructions to Bacs, the most distinctive feature about Bacs software in this context is that it is and On-Premise solution. With multiple user access for payment instructions, Bacs Software allows you to organise, automate and manage your business payments easily and effectively to pay your staff and suppliers on time and collect customer payments.

Conversely, cloud-based payment services allow you to pay your staff and suppliers, and collect payments from your customers, without requiring specialist software or hardware. Using a cloud service, you can submit both Direct Debits and Direct Credits to Bacs but unlike on-premise Bacs software, you don’t need smartcards, card readers or to install any software to be able to send payment instructions.

A Direct Credit is a secure and reliable way to electronically transfer deposits of money directly into a bank or building society account. Direct Credit payments are particularly common in relation to the payment of employee wages and supplier payments but can also be used as a cost-effective solution for a wide range of other purposes and have several key benefits:

• Reduced administration costs – Simple, inexpensive and automated, Direct Credits eliminate the need for manual administrative procedure.
• Improved cashflow management – Broader visibility of transactions ensures greater control over budget and cashflow.
• Decreased reconciliation costs – Knowing when funds will be credited and cleared ensures more accurate cashflow management

Direct Debits are instructions from a customer to their bank or building society that authorises a service user to collect specified amounts of money from their bank account.

In typical circumstances, a standing authorisation is set up between the payer and payee and a payment instruction is submitted to the payer’s bank or building society. The payment is then issued on the specified date and the Direct Debit is recorded on a statement issued to the payer. Sign up to Direct Debits can be paperless and all Direct Debits are covered by the Direct Debit Guarantee.

A practical and efficient way for businesses to collect customer payments, using Direct Debits carries several benefits including:

• Straightforward setup – The simple setup process for Bacs payments allows customers to pay quickly and easily
• Massive cost savings – Time consuming manual reconciliations are reduced or eliminated completely.
• Certainty of payments – Amounts due from customers will always be credited directly to your account.
• Security and reliability – Highly secure, built in safeguards protect both parties during every transaction.
• Greater financial control – Knowing when funds will be credited and cleared ensures more accurate cashflow management.
• Direct Debit guarantee – Advance charge notices and an immediate money-back guarantee makes transactions risk free.

Useful Links:

Direct Debit FAQS

There are two essential steps that must be taken to start taking Direct Debit payments:

Consult your Bank

The first thing that you will need to do is contact your bank. They will advise you on whether your business complies with the initial integrity, financial standing and administrative capability checks necessary to start using Bacs. Your bank will also be able to provide you with any technical equipment you might need such as a smartcard and smartcard reader and give you some more general information about the Scheme rules and procedures.

Your bank will issue you with a SUN. If you cannot get a SUN from your bank, you will need to contact a Facilities Management Service Provider.

Where a SUN is provided by your bank, there are two different ways that you can submit payment data to the Bacs service:

• Indirect Submission – This method of Direct Debit collection is either made via your bank or a Bacs Bureau. This is where you pass your Bacs file to a Bacs approved service who in turn, submit your Bacs file to Bacs on your behalf.
• Direct Submission – This method is more suitable for users submitting larger volumes of Direct Debit payments. You will require a PC with internet access and Bacs Approved Software in order to send data directly to Bacstel-IP. Using this method, you will also be able to view your submission history, access reports and look-up the details of your contacts and service-users.

How do I setup Direct Debit instructions?

Having become a Bacs service user, you are now ready to choose how you would like to collect payments from your customers. You can do this using either paper instructions or by using paperless Direct Debit:

Paper Instructions: Using this method, you will need to supply your customer with a printed Direct Debit Instruction for the specified amount. Once the customer has verified the amount, signed and returned it, you can then check the details are correct. Assuming both parties are happy, you can then forward it to the customer’s bank or building society for processing.

Paperless Direct Debits: This works in the same way as a paper instruction but instead of posting the Direct Debit instruction to the customer’s bank, it is sent electronically, making the process quicker and easier.

Direct Debit Management System (DDMS) enable you to create, manage and store your Direct Debit payments and collect monthly subscriptions or one-time payments with ease.

With more and more businesses choosing to use Direct Debits every day because of the clear cost, resource, forecasting and error reduction advantages, Direct Debit has become the most effective way to make payment collections.

Direct Debit Management Systems are powerful AUDDIS compliant solutions that enable you to manage your Direct Debits in one place and streamline cash flow, ensuring greater visibility of financial information and operational efficiency.

Standalone or integrated Direct Debit Management Solutions can integrate with Salesforce, Zuora, ENSEK and many others. Open API also allows you to integrate Direct Debits/Credits and card payments into your systems.

Key benefits to using a Direct Debit Management System:

• Reduce your costs – The safest and cheapest way to make business payments, paperless Direct Debits, ensure administrative costs are kept to a minimum.
• Increased efficiency – Achieve increased efficiency in your Direct Debit processes by having all your transactions occur in one place. Direct Debit Management Systems reduce time consuming reconciliation tasks and ensures payment data is collected without manual intervention and human error.
• Reduced rejections – All Direct Debit sort code and account data are validated against the UK Industry Sort Code Directory (ISCD) to prevent rejections and ensure collection accuracy

It is vitally important for any business that takes card payments online, over the phone or face-to-face, to comply with the Payment Card Industry Data Security Standards (PCI DSS).

Developed by the PCI Security Standards Council (PCI SSC) – an organisation made up of major payment card associations including Visa, Mastercard and American Express, the PCI DSS seek to to protect against data breaches and specifically:

• Help businesses process card payments securely
• Reduce card fraud
• Ensuring that customers’ card details are protected

Subsequently, if a business taking card payments fails to comply with the standards, heavy fines, loss of customers and withdrawal of card payment facilities could result.

Despite the mandatory compliance however, there are some very real benefits that can be felt by all parties to a transaction, including:

• Reduce risk of data breaches by improving security measures
• Ensures avoidance of fines for non-compliance
• Sensitive customer data is protected
• Simplifies global regulatory compliance
• Provides peace of mind for businesses and customers

There are four levels of PCI DSS compliance which are assigned to merchants based on the volume of payments processed each year. Each level has its own specific requirements but broadly speaking, the transaction volumes for each level are as follows:

• Level 1 – Businesses processing over 6 million card transactions annually through all channels
• Level 2 – Businesses processing 1 to 6 million card transactions annually through all channels
• Level 3 – Businesses processing 20,000 to 1 million card transactions annually, exclusively via eCommerce
• Level 4 – Businesses processing up to 1 million card transactions annually through all channels and/or does not process more than 20,000 card transactions annually via eCommerce

You can find out more about the full list of requirements for PCI DDS on the official PCI site.

Whilst the process of becoming PCI DSS compliant can be a little daunting, our partner Opayo is one of the UK’s most trusted payment providers, helping businesses grow and accept payments from customers all over the world.

Opayo can guide you through the process of becoming PCI DSS compliant, making the whole process both quick and easy. To read their latest Whitepaper on becoming PCI compliant, click here.

Modulus checking is included as standard for all products and services. This is a feature that checks the validity of all bank account and sort code details held within the Bacs file.

By checking the account and sort code detail prior to submission, it removes the opportunity for payment failures and errors.

SmarterPay automatically updates all of our products and services on a weekly basis with all the latest validations.

A Service User Number (SUN) is a unique six-digit number issued to all businesses who collect payments using Direct Debit. It is used to create a record of the transactions between the business and the Bacs clearing service and often used by banks to find out details about transactions where errors have occurred.

You will be unable to submit payment instructions directly to Bacs without a SUN but you will not need one to submit instructions indirectly to Bacs via a third-party bureau. Where a business takes the decision to submit to Bacs via a third party, the submission can take one of two forms:

• Facilities Management – Here a Direct Debit bureau sets up and owns a SUN (‘Bureau Client’) for each customer and payments are collected and deposited on behalf of each customer.
• Payments Institution – Regulated by the Payments Service Directive, Payment Institutions collect payments using a single SUN registered in their own name and make payments to each customer.

What are the benefits of Service User Numbers?

Using SUNs in conjunction with Bacs can assist your business and confer a number of key benefits including:

• Reduced administration costs – Using fully automated Direct Debit services minimises paperwork, postage costs and reduces manual processing expenditure.
• More accurate cashflow management – Ensuring all customer payments are scheduled in advance, you will be able to forecast and budget cash more accurately.
• Automation ensures greater peace of mind – After the initial Direct Debit is setup, customers can be assured that all their bills are paid automatically and on time.

How do I obtain a Service User Number?

SUNs are issued by Bacs to organisations via several sponsored major UK banks. Each bank has its own application process but there are a number of common checks for the following:

• Financial Standing
• Integrity
• Management Expertise
• Administrative Capabilities

Applications for a SUN are decided on a case-by-case basis and are granted at a bank’s discretion but providing the listed criteria (above) are met, an application will be successful.

In order to make Direct Debit or Direct Credit payments, you will require either a Smart card and reader or a Hardware Security Module. These will be provided to you by your sponsoring bank or building society. Whilst each one has several advantages and disadvantages, the one you choose will depend on your specific business requirements.

A Smartcard is plastic credit card-sized device that has a built-in microprocessor that enables the validation and authentication of electronic banking transactions. Providing an enhanced level of security, Smartcards encrypt payment data which is authenticated when inserted into a Smartcard reader.

The Smartcard reader is attached to a personal computer and ensures tighter control over payment submissions because the user must be verified. Smartcards are also inexpensive to setup and require minimal hardware infrastructure. There are several drawbacks to using Smartcards however which include the fact that they are often damaged, broken or lost and that there needs to be someone on-site to authorise each payment

Contrastingly, a Hardware Security Module (HSM) is a security device that generates, stores and authenticates cryptographic keys to provide secure certification for electronic payment transactions. HSM’s are attached directly to a personal computer or network and provide a superior form of security in comparison to Smartcards. This is due to the use of cryptography, more resilient hardware and the fact that Smartcards can be copied, misplaced or stolen.

Should I choose a Smartcard or HSM?

Depending on your requirements, one may be more suitable than the other as the table below illustrates.

Payroll systems and accounts systems are usually able to produce a ‘standard 18’ file ready for submission to Bacs. Although as the name suggests it is a standard format file, we always like to have an example of any file formats prior to installation or set up. This is to ensure that all the correct fields are captured, and we have mapped them correctly.

If the customer subscribes to our SmarterPay Cloud DDMS or Salesforce DDMS we will automatically create and submit files.

Bacs uses a series of transaction codes for each transaction processed via Bacs which serves as a short-hand indication of the type of transaction. Common codes include:

• Transaction Code 01 – The code used in connection with transactions processed via Bacs to determine that the Direct Debit payment is the first collection made under the DDI
• Transaction Code 17 – The code used in connection with transactions processed via Bacs to determine that the Direct Debit payment is for subsequent collection
• Transaction Code 18 – The code used in connection with transactions processed via Bacs to determine that the Direct Debit payment has been represented for payment
• Transaction Code 19 – The code used in connection with transactions processed via Bacs to determine that the Direct Debit payment is the final collection to be made under the DDI (the use of this transaction code advises the PSP to delete the DDI from its records and may also result in a ‘final collection’ message appearing on bank statements)
• Transaction Code 99 – Direct Credit, or Debit contra (credit record to balance debit records)
• Transaction Code Z4 – Denotes Interest payments
• Transaction Code Z5 – Denotes Dividend payments