Automatic direct debit systems help subscription-based businesses get paid on time. It is painful for both you and your customers to remember to follow up on a monthly bill. Establishing automatic direct debit payments stops you having to follow up on invoices each month. Customers also do not need to worry about losing service because they forgot to pay a bill.
Automatic direct debits involve withdrawing cash directly from your customers’ accounts. Therefore, you must follow the rules established by the Australian Payments Clearing Association (APCA). This article explains how to set up an automatic direct debit request (DDR) system.
Decide if a Direct Debit System is Appropriate
The first step is to ensure that establishing a DDR system is appropriate for your business. A DDR system might not be suitable for your business if a payment is one-off and there is no ongoing relationship with the customer. For example, share offers, investment payments or one-off product purchases.
Obtain a User Identification Number
Secondly, you need to let your financial institution know that you would like to set up a DDR. Your bank will give you a user identification number which is required to permit you to accept direct debit payments.
Obtain Legal Documents
Thirdly, you must ensure that you have a DDR request form and DDR service agreement. The APCA requires any business wishing to set up direct debits with customers to have these two documents. The documents are required to:
- obtain your customers’ consent to the DDR;
- provide the customer with specific information about how the DDR works; and
- let the customer’s financial institution know that the customer has authorised your business to withdraw funds directly.
Without these documents, the financial institution will not allow your fees to be debited from the customer’s bank account.
Follow APCA Guidelines
When operating your DDR system, you must follow the APCA’s ‘Procedures for Bulk Electronic Clearing System Framework’ (BEC procedures).
- obtain clear instructions from your customer authorising the DDR (by the customer signing a DDR form);
- keep the details of the DDR for seven years after the date of the last processed debit;
- ensure that the customer has the terms of the DDR service agreement at the time they receive the DDR form; and
- ensure that the DDR service agreement explains how the customer can cancel the DDR and whether they should contact you or their own financial institution.
Establish the DDR in Writing, Online or via Telephone
You can establish a DDR with a customer using a written form, online or via telephone.
To establish a DDR in writing, the customer must sign and date your DDR form to provide their consent to you deducting your fees from their account.
If you establish a DDR with a customer over the phone, then you need to give them details of the debit arrangement (clause 7.11(b) BEC procedures). These details include confirming:
- the amount of the payment;
- when you deduct the payment; and
- how often you will deduct the payment.
This information must also be provided to a customer who signs up to a DDR online.
Whether establishing the DDR over the phone, online or in writing, you need to keep a record of each customer that has signed up to the DDR and a record of their details. You must provide the customer with a receipt confirming the establishment of the DDR, in writing, within seven days of establishing the DDR with the customer.
If you want to set up direct debit payments in your business, follow the BEC procedures to make sure you comply with legal requirements. You will need a DDR form as well as a DDR service agreement. You also need to obtain a user identification number from your financial institution and follow certain procedures depending on whether you establish a DDR over the phone, online or in writing.
If you need further advice on how to set up direct debit payments, call LegalVision’s business lawyers on 1300 544 755 or fill out the form on this page.
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