A private customer sending money electronically for a monthly bill is paying via Bacs (Bankers’ Automated Clearing Scheme). For a company to receive the Bacs transfer, they must have a SUN (Service User Number).
There are two ways to do this – apply for your own SUN, or pay for a third-party organisation to use one on your behalf.
However, some businesses will not meet the SUN eligibility requirements, and for those that do, it is not compulsory.
To help you understand how SUNs work and whether it is the right option for your business, we’ve put together this guide to address any questions you might have.
1) What is a Bacs Service User Number (SUN)?
A SUN (Service User Number, or sometimes referred to as an Originator ID) is a unique six-digit number used to identify a business paying or receiving money through a direct debit Bacs transaction. SUN details are kept in a database managed by Bacs.
All communications with Bacs require a SUN, and this is used to create a record of each individual transaction. The bank itself uses the SUN to verify the correct business name to be displayed on the direct debit payer’s bank statement. If the payment is later charged back by the customer (in the event of payment error or fraud), the SUN on the payment is used to identify the business liable for the chargeback.
2) Who owns and uses the SUN?
Imagine you are a customer paying your utility bill by monthly direct debit. Your supplier either has its own SUN or uses a third-party agency which uses a SUN on the supplier’s behalf. You probably won’t even be aware of the SUN but it ensures that Bacs knows where to send your money and who to reference in your bank records.
As a business receiving and/or paying money electronically through Bacs, you have the same choice as the supplier above; you either have and use your own SUN to facilitate the Bacs process or, if you don’t have your own SUN, you pay a small commission to a third party to manage it for you (either a bureau which allocates one of its own SUNs to you or a Payments Institution).
The most important thing for any business to note is that without access to a SUN, you cannot use Bacs to receive or send electronic payments.
3) What are the benefits of having a SUN
Managing your own payments system directly can make your business more efficient and save you commission fees charged by the third party. Let’s consider each of the twin transactions, debits and credits.
Direct Debit receipts: Having direct control over incoming payments makes your company more productive, with better cash flow control and customer retention.
Direct Credit payments: As with Direct Debits, there are significant efficiency gains to be had from controlling your outgoing money through Direct Credits. It provides a simple, secure and reliable service for routine payments such as salaries.
4) Am I eligible?
SUNs are only issued to businesses who are sponsored by Bacs members (the UK’s major banks). Therefore you need to apply to your bank to make an application. Your bank will need you to meet certain criteria. These vary from bank to bank but all look for some key requirements:
- Management expertise: you must be able to demonstrate the ability to enforce the Direct Debit scheme rules, minimise submission errors and maintain the reputation of the scheme.
- Financial reserves: you need to have sufficient reserves * to make any refunds under the Direct Debit Guarantee which protects customers against payments made fraudulently or in error.
- Contractual capacity: in relation to the previous requirement, you must be able to indemnify your sponsor bank against any payments charged back under the Direct Debit Guarantee.
You will also find it difficult to qualify for a SUN for Direct Debit transactions if you have been established for three years or less, or have a turnover of less than £1 million. For Direct Credit, however, it can be easier to obtain a SUN. In both cases, check with your sponsoring bank.
The final decision rests with the bank. In most cases, a SUN will be granted if the above requirements are satisfied, but additional requirements may also be imposed.
* – These reserves are usually placed in a surety bond which constitutes a written guarantee to pay one party (the obligee, or person who has been defrauded or had payment taken in error) an agreed amount if the second party (the principal) breaches the terms of the contract or fails to meet certain obligations. The surety, therefore, exists to protect the obligee.
5) What are the alternatives?
There are two options which will enable you to conduct Bacs transactions without a SUN:
- Facilities management through a Bacs-Approved Bureau (BAB): These organisations manage the facility for you. A bureau will set up a SUN on your behalf but retain actual ownership of it. As the owner, they receive your payments directly into their own account and then reimburse you, charging you a monthly service fee. Even if you are technically eligible to apply for a SUN, you might still choose this option if, for example, you only make a small number of Direct Debit and Bacs Direct Credit transactions each month.
- Collection through a Payments Institution: Payments Institutions are regulated under the PSD (Payments Services Directive *) and collect payments on behalf of their client using their own single SUN. They then reimburse the client and charge a fee.
In both cases, it is the third party, not you, who must satisfy all the eligibility requirements for owning a SUN.
* – The Directive on Payment Services (PSD) provides the legal foundation for the creation of an EU-wide single market for payments.
6) How do I apply for a SUN?
As explained earlier, you need to apply through a sponsoring bank. Their role and responsibility is to ensure that you meet the criteria and will not bring the scheme into disrepute.
It can take anything from two to ten weeks for the SUN to be granted following your initial request depending on the bank involved, individual criteria and the complexity of your business.
7) What do I do when I get my SUN?
Now you have a SUN, it’s possible to set yourself up as a Bacs user.
You can start processing your own Direct Credit payments immediately, but for Direct Debits, you need to decide how to set up your customers’ payments.
There are two ways to do this –
- Your Direct Debit payer can either physically sign a paper Direct Debit Mandate
- You can receive acceptance through a paperless notification (i.e. verbal or electronic). This is known as the Direct Debit Instruction (DDI) and you must submit this to Bacs using AUDDIS* (Automated Direct Debit Instruction Service).
To collect Direct Debit payments you submit your payment data – including the amount of each payment, bank account number, sort code and payment date – using your chosen method.
The entire payment process is simple and efficient – and it takes less than three days from start to finish. You should also consider the additional management services available that can help save on administration time and reduce costs.
* – AUDDIS automates the transfer of Direct Debit Instructions from collecting organisations to the paying banks and building societies via the Bacs service. With AUDDIS, the organisation keeps the original signed Instruction and electronically sends the details to the customers’ bank to validate and, if accepted, set up the Instruction on its database.
8) CAUTION: A business can lose its SUN
Bacs are rigorous about maintaining the integrity of the Direct Debit scheme and will withdraw your SUN if you do not uphold their high standards. Your performance will be monitored closely; if Bacs receive a significant number of customer complaints through the Direct Debit Guarantee scheme, you may lose your SUN and, along with it, the ability to collect further Direct Debit payments.
9) Final Thoughts
The Bacs system of automated payments exists to make life easier not only for businesses but for their customers too. It does this not just by facilitating electronic payments of various kinds, but also by setting and maintaining standards, ensuring these are protected by user guarantees.
It’s no surprise, therefore, that being able to use the scheme also demands that you do your bit to keep your standards in line with those of Bacs. Nevertheless, for many businesses any minor inconvenience this may bring is outweighed by the significant advantages and efficiencies.
So, assuming you meet the eligibility criteria, the choice is yours; do you want the maximum control over electronic payments coming in and going out? Or are you happier to pay a small fee and let a third party manage this for you?
This article was about: payments