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Entering into contracts is a daily occurrence for most people. However, you may not realise you are entering into them as many contracts are implied from conduct or circumstances. One such contract that you may not have come across before is a direct debit request (DDR) service agreement. This article will explain what a DDR service agreement is and key terms to include in it. 

DDR Service Agreement

A direct debit request service agreement is a type of contract that requests access to your bank account for payment for a specific service. Subscription-based services, like utility bills, typically use these agreements. The benefit of direct debit is that the person paying for the service does not have to remember to pay for it. Therefore, there is reduced risk of missing a payment. 

To set up a direct debit payment you must enter into a DDR service agreement. This agreement needs to contain certain terms so that there is full protection for the transaction. 

Key Terms for a DDR Service Agreement

Early Termination Clause 

An important clause to include in your DDR service agreement is an early termination clause. An early termination clause enables either party to terminate the agreement before the specified end date of the contract. The circumstances in which a party can terminate the agreement will depend on the language of the contract. However, it is prudent to allow early termination as long as both parties agree to it.

Always include a line that indicates the agreement is only cancelled once you have confirmed the termination in writing. Otherwise, some customers may believe that the agreement is cancelled once they indicate their desire to activate this clause. 

Payment Suspension Protocol

You should also include a clause that refers to the protocol if your customer wants to suspend payment for a given period. This may be because they are unable to pay or are looking at other options. Indeed, it is a good idea to allow your customers to suspend payment as it builds a good relationship with them. You can also seek to extend the contract for however long payment has been suspended. 

Dispute Resolution Process

Another good clause to include in your DDR service agreement is a dispute resolution clause. This will determine the process for resolving issues with your contracting party. The best way to structure your dispute resolution clause is to specify that both parties must go through a dispute resolution process before initiating court proceedings. 

A dispute resolution process could be either:

If there is still no solution to the dispute after going through these steps, going to court may be the only option left.

Dishonoured Payments Clause

There should also be a clause that refers to dishonoured payments in your DDR service agreement. If your customer does not have enough money in their bank account to pay the direct debit, the payment becomes dishonoured. In this case, you may charge a small fee or take the overdue payment with the next payment. 

Rights Under a Direct Debit

Importantly, your customer has certain rights under a direct debit that you should note. Firstly, to set up a direct debit, the customer’s bank must have a signed authorisation from the customer that allows you direct debit. The customer is also able to ask their bank to cancel the direct debit at any time. This is even the case if you have signed a DDR service agreement with them. However, your customer still owes you any outstanding payment and they must pay this amount another way.

Key Takeaways

As with any contract, your DDR service agreement must contain key terms to provide maximum protection. The main terms that you should include in your DDR service agreement are:

  • an early termination clause;
  • a payment suspension protocol;
  • a dispute resolution process; and
  • a dishonoured payments clause.

For legal assistance with your direct debit request service agreement, contact LegalVision’s contract lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

Can I cancel the direct debit if my customer does not have enough money in their account?

If your customer is unable to pay you, they are in breach of contract. Likewise, you are entitled to terminate the agreement and have options to recover what your customers owe you in court.

Can my customer stop the payment by closing their account?

Yes, your customer can close their account to stop future payments. However, you are within your rights to retrieve any outstanding payments from them in court. 

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