Fundraising through Direct Debits

Direct Debit is the preferred, regular payment method for over half of the UK bill paying population, with almost three quarters of UK adults positively disposed to it over traditional methods like cash and cheques.

Each year BACS processes 2.7 billion Direct Debit payments. A Direct Debit is an instruction from a donor to their bank or building society authorising an organisation to collect varying financial amounts from their account. BACS is the not-for-profit organisation behind every direct debit.

Direct Debit or Standing Order?

The difference between Direct Debits and Standing Orders is essentially one of control. With Direct Debits, the receiving organisation is able to change the amount requested (subject to donor permission). Standing orders can only be amended by the Donor. This means for example a charity can negotiate increased donations each year and amend the payment themselves rather than on depending on the donor to contact their bank to make the necessary arrangements with a standing order.

For the charity however, being able to accept Direct Debits can be expensive to set-up and require the organisation to develop its in-house systems. You will have to meet the required criteria to become a Direct Debit Originator (an organisation which can initiate direct debits). This will involve checks for integrity, financial standing and administrative capability.

For many organisations promoting the use of standing orders is a more efficient way for them to recruit long-term committed givers without the costs associated with direct debits. However the benefits of Direct Debit means the initial expense if setting up is outweighed by rewards in the long-term.

Essentially there are two ways of utilising direct debits as a charity:

Direct Debit Originator or Payment Processing Agency

Charities can fundraise using Direct Debits either by becoming a Direct Debit Originator or using a Payment Processing Agency to accept Direct Debit on its behalf. Charity Technology Trust and Charities Aid Foundation are just two examples of agencies able to process Direct Debits on the charities behalf.

If the charity has decided to introduce Direct Debit, the first thing to do is consult its bank or building society. (this is know as the Sponsoring Bank - but this has nothing to do with sponsorship in the fundraising sense). They will assess the charity's financial standing and administrative capability.

The charity's bank should be able to advise on the facilities needed and provide the Scheme Rules and procedural information necessary before it can offer Direct Debit to donors.

Once the charity becomes a Direct Debit Originator, there are three ways of setting up Direct Debit Instructions (DDIs) to collect payments from your donors.

Paper-based Direct Debit Instruction

The charity supplies the donor with a printed DDI. Once the donor has completed, signed and returned this and the charity has checked and recorded the details, it is forwarded to the donor’s bank or building society.

Upon receipt the donor’s bank will normally accept and record the DDI on the donor’s Direct Debit records.

The charity then sends the donor details (advance notice) of the payment amount, due date and frequency of the Direct Debit, prior to the first payment being collected. Should any of these details change the charity must notify the donor in advance. The charity may agree the period of advance notice with the donor, the norm being a minimum of 10 working days.

AUDDIS – automating the process - (AUtomated Direct Debit Instruction Service)

AUDDIS is an enhancement to the Direct Debit service, which seeks to improve the processing of DDIs, resulting in time and cost savings for the charity. Instead of posting the paper DDI to the donor’s bank, it can now be sent electronically, which it is argued means:

• Reduced set up costs
• Faster identification of invalid account information and hence a reduction in unpaids
• Reduced time between the bank receiving and accepting the DDI and the collection of the first payment
• Better quality of service due to reduced processing delays and fewer manual steps
• Reduction in re-keying errors, further improving the quality of service

Paperless Direct Debit
AUDDIS can also lead to another enhancement of the Direct Debit service – Paperless Direct Debit

By enabling donors to sign up at the point of sale, over a telephone or on the Internet, Paperless Direct Debit gives the charity further clear advantages:
- Donor bank details are taken much more accurately, eliminating later administration problems
- The charity can eliminate much of the paperwork and postage associated with setting up Direct Debits
- The charity can begin the collection process earlier.

Direct Debit is administered by BACS Payment Schemes Limited (BPSL). BACS Payment Schemes Limited is a membership-based industry body whose role is to develop, enhance and promote the use and integrity of automated payment and payment-related services. It promotes best practice amongst those companies who offer payment services and is responsible for the associated payment clearing and settlement services.

www.directdebit.co.uk

www.cafonline.org

www.ctt.org.uk