A Direct Debit Instruction (DDI) is permission from a customer to allow a business to take money out of their bank account. DDIs are the foundation for many recurring payments in the UK, such as gym memberships, energy bills, and charitable donations.

In a DDI, a customer agrees to let a business collect money on specific dates. The amount is either fixed, or it changes from month to month—such as a fluctuating utility bill. The DDI agreement is typically created online or by phone, and it’s stored securely with both the company and the bank. Once it’s in place, payments occur automatically until they’re cancelled.

Direct Debit is widely trusted in the UK in part because of the high level of consumer protection built into the system. Customers are notified of any changes to the amount due or payment date, and if a mistake occurs, customers can claim a full refund under the Direct Debit Guarantee.

For businesses, Direct Debit is an important, simple way to manage cash flow. Payments are predictable, there are fewer administrative tasks than in a manual system, and there’s no need to chase invoices or deal with bounced checks. It’s efficient, secure, and—for many industries—an indispensable part of getting paid.

Below, we’ll explain what you need to know about DDIs, including what information businesses need to gather from customers for Direct Debits, what happens in the event of a cancellation, and more.

What’s in this article?

• How do Direct Debit Instructions work in the UK?
  
• What information is required for a Direct Debit Instruction?
  
• What are the legal requirements for setting up a DDI?
  
• How long does it take to activate a Direct Debit Instruction?
  
• What happens if a DDI is cancelled?
  

How do Direct Debit Instructions work in the UK?

In the UK, DDIs power about 7 in 10 recurring bill payments. Here’s how they work.

Customer consent

First, the customer gives their approval for Direct Debits. This is usually done through an online form, although agreements can also be submitted over the phone or by mail. Customers share their sort code and account number, and they agree to let the business collect payments. Once the DDI is in place, the business can collect money without requiring permission each time.

After the customer authorizes the DDI, the business’s payment provider submits it to Bacs—the UK payment network that handles Direct Debits. Bacs notifies the customer’s bank, and payments can begin.

What consumer protections are in place?

Customers are covered by the Direct Debit Guarantee, which means they’re protected if something goes wrong. If a payment is taken by mistake (e.g., on the wrong date or in the wrong amount), customers are within their rights to demand their bank immediately refund the money.

To avoid misunderstandings, businesses are required to give advance notice (typically 10 business days) if there are any changes to an upcoming payment.

How payments are collected

Once the business initiates payment, Bacs transfers the money, which usually lands in the business’s account within three business days. After that initial setup, payments are made automatically—whether the business is charging a set amount each month, such as for a subscription service, or if it’s charging an amount that varies from month to month, such as an energy bill.

How Stripe can help

Stripe can help make it easier for your business to use Direct Debit. After the DDI is set up, Stripe handles everything from submitting it to Bacs to tracking payments. If a payment fails or an error occurs, Stripe flags it so you can address it quickly.

Stripe further simplifies your payment system by combining Direct Debit with the other payment options you offer. For example, if you’re already using Stripe for card payments, adding Direct Debit is straightforward, and it allows you to manage all your payment methods in one place.

What information is required for a Direct Debit Instruction?

To set up a DDI in the UK, businesses need to collect specific details from the customer so payments are authorized and processed correctly. The information that is typically required includes:

Customer’s bank account information

• Account number: The unique eight-digit number for the customer’s bank account
  
• Sort code: A six-digit number identifying the bank and branch where the account is held
  

Customer name

Businesses must collect the name on the bank account to ensure the Direct Debit is tied to the correct account holder.

Authorization

The customer must give their explicit consent for Direct Debits with a DDI. This can be provided through:

• Online authorization: Agreeing to the terms during a digital sign-up process
  
• Phone authorization: Verbal consent, which is often followed by written or digital confirmation
  
• Paper authorization: Signing a physical mandate form
  

Payment details

• Amount: If the payments will be for a fixed amount, this needs to be explicitly stated in the DDI. Businesses must inform the customer of the amount ahead of each transaction.
  
• Frequency: How often payments will be collected (e.g., monthly, quarterly, annually) also must be included.
  

Service User Number (SUN)

This unique number is assigned by Bacs. It identifies the organization collecting the Direct Debit, and it must appear on all communications about the DDI.

Guarantee statement

Businesses must outline the payer’s rights under the Direct Debit Guarantee, including the right to a refund for incorrect or unauthorized payments.

How Stripe facilitates Direct Debits

Stripe allows businesses to collect all the necessary information through a secure digital interface. Customers can authorize their DDIs with a few clicks, and Stripe submits the data to Bacs and manages the setup process.

What are the legal requirements for setting up a DDI?

Setting up a UK DDI requires complying with Bacs rules and legal requirements. Here are the standards your business needs to meet.

Obtain explicit consent

First, you need the customer’s clear approval to set up a Direct Debit. Customers can give consent online, by phone, or by mail. Without authorization, you’re not legally allowed to collect payments.

Notify customers in advance

Once the DDI is in place, you’re required to let the customer know about the first payment before making the debit. This advance notice of collection needs to include the payment date, the amount (or how it will be calculated if it’s variable), and the frequency of payments.

If anything changes—for instance, if the payment amount goes up or you’re adjusting the collection date—you need to notify the customer ahead of time.

Follow the Direct Debit Guarantee

This guarantee allows customers to trust Direct Debits and the Bacs system. It’s usually included in the initial authorization form or confirmation so customers know they’re protected. It’s your legal obligation to inform customers about their rights under the guarantee, which include:

• A full, immediate refund if a payment is collected in error
  
• The right to cancel their Direct Debit at any time
  
• Advanced notice of any changes
  

Keep accurate, secure records

You’re also responsible for maintaining records of the customer’s DDI. If it’s a paper mandate, you’ll need to store the signed form securely. For online or phone authorizations, you need a strong digital recordkeeping solution that makes it easy to retrieve records if needed, such as during an audit.

Keeping these records isn’t only important for compliance—you should also have them accessible to resolve any disputes or questions that arise.

Use the Bacs system correctly

All Direct Debit payments are processed through the UK clearinghouse Bacs. To work with Bacs, you need to make sure you’re using the system correctly by submitting accurate payment instructions, following its rules for creating and managing DDIs, and promptly addressing any failed payments.

Bacs processes Direct Debits securely and efficiently, but it’s your responsibility to make sure your submissions meet its standards.

How Stripe helps businesses navigate these requirements

Stripe makes it simple for businesses to comply with Bacs requirements by collecting DDIs digitally, storing data securely, and submitting authorizations to Bacs for you. Stripe also automatically sends the required notifications to customers. Because everything is managed in one place, it’s easy to track payments, refunds, and cancellations.

How long does it take to activate a Direct Debit Instruction?

DDIs aren’t activated instantaneously. The process involves several steps, which are mostly managed by Bacs. Here’s a breakdown of how long activation typically takes.

Initial setup

When a customer provides authorization, the business or its payment provider submits the DDI to Bacs. From there, the customer’s bank receives the instruction and verifies the details. If the details are correct, the DDI is activated.

When payments can start

The Direct Debit can’t be collected until the instruction is active. Typically, the DDI is processed by Bacs and sent to the customer’s bank the day after you submit it. By the next day, the instruction is generally active, meaning you can start collecting payments.

However, you’ll also need to factor in the required advance notice of collection. The notice period is typically 3 to 10 working days depending on your agreement with the customer. So while the DDI might be ready in three days, you might need to wait longer to comply with notification rules.

Delays and exceptions

There are some situations that might slow things down, including:

• Incomplete or incorrect information: If the sort code or account number is wrong, the DDI will fail, and you’ll need to restart the process.
  
• Paper forms: If you’re using physical mandates, processing can take longer, as you’ll need to account for postal times and manual handling.
  
• Bank verification issues: Occasionally, banks might take extra time to verify account details.
  

What happens if a DDI is cancelled?

When a DDI is cancelled, it means the agreement between a customer and a business to collect payments directly from the customer’s bank account is terminated. This can happen for several reasons, and it’s important to understand what cancellations mean for both parties and how to handle them.

How a DDI is cancelled

• Customer initiated: Customers can cancel a DDI at any time by contacting their bank. They’re not required to inform the business directly, although it’s recommended that they do, to avoid confusion.
  
• Business or bank initiated: The business or the bank may cancel a DDI if:
  
  • The agreement has ended (e.g., the subscription is terminated)
    
  • There has not been any activity on the Direct Debit for a certain period of time (usually 13 months or longer)
    
  • There are repeated payment failures due to insufficient funds
    

What happens after cancellation

• Payments stop immediately: As soon as the bank processes the cancellation, no further payments can be collected under that DDI. If a payment was already scheduled, but it hasn’t yet been processed, it won’t go through.
  
• The business is notified: Payment service providers inform businesses about the cancellation through an Automated Direct Debit Amendment and Cancellation Service (ADDACS) message. This report outlines the reason for the cancellation so the business can update its records.
  
• Customer obligations might remain: Cancelling a DDI doesn’t automatically cancel the customer’s obligation to pay. For example, if the customer still owes money, they will need to pay with another payment method.
  

How businesses can handle cancelled DDIs

• Update records: If your business receives an ADDACS notification, update the customer’s status in your system to reflect the cancellation. Doing so prevents your business from attempting further payments under that DDI.
  
• Contact the customer: If the cancellation was unexpected, reach out to the customer to understand why it happened. They might have changed banks, forgotten about the agreement, or experienced a billing issue. Customers might consent to having the DDI reinstated if their issues are resolved.
  
• Offer alternate payment options: If the customer owes a balance, you’ll need to arrange another way for them to pay, such as a bank transfer, card payment, or initiation of a new DDI.
  

How Stripe handles cancelled DDIs

Stripe records cancelled DDIs through its integration with Bacs. You’ll be notified when a DDI is cancelled so you can take action quickly.

Stripe also helps businesses manage reactivation if the customer agrees to reinstate Direct Debits. With Stripe’s tools, businesses can create an all-in-one experience for handling cancellations to reduce disruptions.