Direct Debits (DD) and Direct Credits (DC) have undoubtedly become a cornerstone of the UK’s payment processes over the past decade, with almost six billion payments processed each year. Yet most organisations’ DD and DC mandate set up processes are clearly still inadequate: almost a quarter of individuals (23%) have experienced a problem setting up or amending a DD or DC in the past 12 months.
BACS estimates every DD failure costs up to £50 to repair; but is this an underestimate of the scale of the problem since it fails to take into account the loss of the failed transaction value or the impact on the customer relationship?
In reality, as a result of the intentional or mistaken use of the incorrect sort code or the wrong bank account number, almost half (43%) of finance departments are spending more than four hours every month rectifying failed DD or DC transactions. And the business cost extends beyond finance: 14% of consumers actually admit to having cancelled a policy or subscription due to complicated DD or DC set up processes.
So how can a business simplify the creation of these vital DD and DC payments whilst also imposing far greater control to minimise human error and avoid fraud?
Direct Debits (DD) and Direct Credits (DC) have fast become an essential component of the payments landscape. In 2012, BACS processed almost 3.5 billion DDs and over 2.2 billion DCs. Organisations gain the benefits of improved control over cash flow, credit visibility and fewer bad debts.
But how many organisations are actively tracking the cost of DD or DC failure? How many understand the implications on customer and employee relationships, supplier negotiation or even business loss when a payment cannot be processed as expected?
While BACS estimates that every DD failure costs up to £50 to repair, in fact as many as 60% of businesses admit incurring a cost of £50 or more for every failed DD transaction, according to the latest research undertaken by Redshift Research. 78% admit the finance team spends more than 10 minutes rectifying each failed DD; with 14% taking more than 30 minutes per transaction.
As a result, 43% of finance teams spend over four hours every month fixing problems with DD transactions; and 11% take more than 10 hours each month. If the activity is fraudulent, it takes even longer to resolve, with 28% of organisations citing fraudulent DD/DC transaction failure as the most time consuming to correct.
In addition to these measurable costs, there are the on-going business implications of payment failure. Almost three quarters (71%) of businesses admit failed DD transactions damage customer and employee relations; 36% said they result in a higher business cost to secure revenue and 35% of businesses admit to losing revenue as customers move to a competitor.
Despite this awareness, almost a quarter (23%) of consumers still experienced trouble setting up or amending a DD or DC in the last 12 months. Indeed, companies admit that the vast majority of payment failures (63%) occur in payments made to the business by a customer. And the result? 14% of consumers will cancel a policy if there is a problem setting up a payment; whilst a further 18% will actively look for a competitive alternative.
So how can UK businesses continue to realise the compelling benefits of the DD and DC model without incurring additional costs and administrative overhead or compromising critical supplier and customer relationships?
It is perhaps unsurprising that human error is the cause of the vast majority of payments failures. From a lack of numerical confidence to the ever present risk of transposing numbers when re-keying data, mistakes are a problem.
Interestingly, in the key area of customer payments – the area that contributes most highly to failures – 43% of businesses attribute the problem to human error within the finance department and 48% to the provision of the wrong information; while 65% of consumers insist the recipient organisation is to blame.
Wherever the fault lies, the underlying cause of the problem is bank account and / or sort code error – which account for 71% of failed DD/DC transactions. Indeed, with 6% of individuals also admitting to having intentionally completed a DD mandate incorrectly, the vast majority (78%) knowingly used the wrong bank account or sort code number.
Verify & Validate
There is a clear need to impose control over this process; to not only streamline the creation and amendment of DD/ DC mandates but also prevent the accidental or intentional use of incorrect bank account or sort code numbers. Opting to verify and validate at point of entry transforms the process.
The key is not only to check that a bank account and sort code are valid – that a specific bank account number fits the rules that associate it with a specific sort code – but also to check the validity of each account. With this approach, companies are protected from fraudulent activity that uses genuine bank details but associated with a different nominated individual or company.
By flagging issues with account number or sort code in real time, the customer services team can immediately check the information from customer, employee or supplier – avoiding both natural mistakes and fraudulent intent. With this real time verification and validation, organisations minimise DD failures and significantly reduce fraud. This reduces the time spent repairing and resubmitting transactions, relieving the pressure on finance, but also improves customer relationships and minimises the risk of customers cancelling a service or subscription.
Certainly there is a growing recognition that real time verification and validation software offers tangible benefits. According to the research, this approach reduces cost of managing customer queries (51%); delivers better cash management visibility (42%) and provides a better acquisition and sign up process (40%).
Organisations are spending huge amounts of money on winning new customers. So why jeopardise that spend through inadequate payment processes. DD and DC are compelling payment instruments that can offer excellent cash flow control. But the current failure to validate and verify account information in real time is clearly undermining the experience and disenfranchising hard won customers. Human error is unavoidable; it is only by imposing real time control that organisations can flag and address mistakes up front to reduce DD and DC failure and truly realise the benefits of more predictable cash flow.