The recurring payments reckoning: why UK enterprises must move beyond Direct Debit

1 hour ago

10 min read

Commercial VRP has arrived. But a faster rail alone won't fix collections. Enterprise billers need payments, data and risk working as one system.

Direct Debit is the most successful recurring payment mechanism the UK has ever built. It is also the reason so many large billers still can't see their cash, their customers or their risk clearly enough to act on them.

For five decades the deal has been simple. The customer signs a mandate, the biller pulls whatever it is owed, and Bacs does the rest over three working days. It worked in a world of fixed bills, stable incomes and overnight batch files. That world has gone.

Today's enterprise biller, and the UK energy supplier above all, is running a real-time, data-driven, heavily regulated business on a payment rail designed for punched cards. Household energy debt is at a record high. Regulators expect suppliers to spot vulnerability early and treat customers in difficulty fairly. And finance teams are being asked to forecast cash collection and manage bad-debt exposure with a mechanism that tells them almost nothing until it is too late.

The arrival of Variable Recurring Payments (VRP), first for sweeping and, since June 2026, for commercial use cases including energy and utilities, is the first credible alternative Direct Debit has faced. But swapping one rail for another misses the point.

The real opportunity is to rebuild recurring collections around real-time data and active management of non-payment risk across the whole customer book.

A national institution, running on 1960s plumbing

5bn — Direct Debits processed by Bacs in 2025
£6.1bn — collected by Direct Debit every working day
3 days — from submission to settlement, unchanged for decades

In 2025 Bacs processed roughly 5 billion Direct Debits, around 19.9 million every working day, worth about £6.1 billion a day. That is more than £1.5 trillion a year flowing through a single scheme. Volumes are still growing, up 1.7% to 2.3% a quarter through 2025.^[1][2]

Those numbers explain both Direct Debit's strength and its inertia. It is trusted by consumers, protected by the Direct Debit Guarantee, cheap per transaction and embedded in every major billing platform in the country. Ofgem even bakes its efficiency into the energy price cap: a typical customer on standard credit pays around £138 a year more than one on Direct Debit for October to December 2026.^[3]

But the rail underneath has barely changed. Bacs is still a batch system on a three-day cycle. The long-promised move into the New Payments Architecture keeps slipping, and Pay.UK has said no Bacs migration will begin until Faster Payments has moved first.^[12] For the largest billers, waiting for the scheme to modernise itself is not a strategy.

Five structural problems Direct Debit can't fix

Direct Debit's weaknesses aren't operational bugs. They come from its design, which means no amount of process tuning will remove them.

1. The three-day blind spot

A Bacs collection is submitted on day one, processed on day two and settles on day three. If it fails, the biller usually learns via an ARUDD (Automated Return of Unpaid Direct Debits) report after the money was expected. A finance team forecasting cash on a Monday is often working from information about the previous week.

2. Failure is binary and late

A collection either succeeds in full or comes back unpaid. There is no way to see, before the pull, whether the customer can cover it. Billers find out about affordability problems only after the bounce, by which time the customer may also have been hit by their own bank's charges and the relationship is already strained.

3. The data is thin

ARUDD reason codes say that a payment failed and roughly why ("refer to payer", "mandate cancelled", "no account"). They say nothing about the customer's wider financial position, income timing or whether a smaller amount would have succeeded. That makes intelligent retry, re-presentment and early intervention largely guesswork.

4. Mandates are blunt instruments

A mandate is permission to pull any amount at any time, with advance notice. It has no customer-set limits and no real-time visibility for the payer. That is exactly why the Direct Debit Guarantee has to be so generous, and why indemnity claims can arrive months after a collection, reversing cash the biller thought it had banked.

5. It is an island

Direct Debit sits outside the real-time, API-driven infrastructure that billers now use for everything else. Onboarding, payment, collections, hardship support and refunds all run on different rails with different data. Stitching them together falls to the biller, usually in batch files and spreadsheets.

None of this mattered much when bills were predictable and customers had headroom. Energy has neither.

Why energy suppliers feel it most

Energy is where Direct Debit's limits hit hardest, because the industry combines the biggest volumes with the most volatile bills and the toughest regulatory scrutiny.

£4.55bn — domestic energy debt and arrears, end of 2025 (up 18% year on year)
3.6m — customers in debt or arrears, owing £1,266 on average
76% — of that debt with no repayment arrangement in place

Debt is at a record and still rising. Ofgem's figures put domestic energy debt and arrears at £4.55 billion at the end of 2025.^[4][5] Energy UK estimates the total may have reached £6 billion in the first half of 2026.^[6]

Everyone pays for it. Unrecovered debt is socialised through the price cap, adding around £50 a year to a typical bill according to Energy UK. Ofgem has had to step in with a Debt Relief Scheme to write off up to £500 million of qualifying historical debt. Every pound of avoidable bad debt is a cost passed to customers who do pay.

Bills are seasonal, mandates are fixed. Most Direct Debit customers pay a fixed monthly amount that smooths winter peaks against summer troughs. Getting that number right is hard, and regulated. Ofgem requires fixed Direct Debits to be based on accurate, up-to-date information, and has pushed suppliers to review the payments of around 900,000 customers after miscalculations. [7] Set it too high and the supplier is accused of hoarding credit. Set it too low and the customer drifts into arrears they don't notice until a review lands.

Regulators expect early, tailored intervention. Suppliers must identify customers in vulnerable circumstances and offer affordable repayment options. That requires knowing who is struggling before they default. A system that reports failure three days after the fact, with a one-line reason code, is the opposite of what the regulation demands.

Collections are expensive. Every failed Direct Debit triggers a chain of activity: re-presentment, letters, calls, payment plans, sometimes field visits or a prepayment meter discussion. Much of this effort is spent on customers who could have paid a smaller amount, a few days later, if only the supplier had known.

For a supplier with millions of accounts, these are not edge cases. They are the shape of the book.

Enter Variable Recurring Payments

Variable Recurring Payments let a customer give a regulated provider standing permission to initiate payments from their bank account, over Faster Payments, within limits the customer sets. In

practice: the convenience of Direct Debit, the speed and certainty of a real-time bank transfer, and controls the payer can see and change in their banking app.

Sweeping VRP proved the model. The CMA required the nine largest UK banks to support VRP for "sweeping" (moving money between a person's own accounts) from July 2022.^[8] Adoption has grown steadily, from around 2.45 million sweeping VRPs a month in mid-2024 to roughly 3.7 million VRP transactions in March 2025, with sweeping volumes reported to have nearly doubled during 2025. Sweeping showed that banks could run VRP at scale and that consumers understood and trusted it.

Commercial VRP is now live. Sweeping was always the narrow end. The prize was commercial VRP (cVRP): paying a business, not just yourself. After years of work under the Joint Regulatory Oversight Committee, the industry-led UK Payments Initiative (UKPI) launched Wave 1 of cVRP on 2 June 2026. It is the first new UK payment scheme since Faster Payments in 2008.^[9][10]

Sectors: energy and utilities, telecoms, regulated financial services, e-money institutions, government and registered charities. These are the large, regulated recurring billers Direct Debit has served for decades.
Reach: around 75% of UK current accounts at launch, across the major high-street banks.
Pricing: a single fixed pence-per-transaction fee for the payment provider, set for around five years, giving billers cost certainty to build a business case on.
Next: Wave 2, covering wider e-commerce and other sectors, is expected in the second half of 2026, with UK Finance consulting on the commercial model.^[11]

For energy suppliers, the timing is significant. The sector at the sharpest end of Direct Debit's problems is among the first allowed to use the alternative.

What cVRP changes, and what it doesn't

cVRP fixes the rail. It does not, on its own, fix collections.

	Bacs Direct Debit	Commercial VRP
Speed	3 working days to settle	Seconds, 24/7, over Faster Payments
Payment outcome	Learned via ARUDD after the due date	Known immediately
Customer control	Mandate allows any amount, with advance notice	Customer-set limits, visible and revocable in their banking app
Flexible amounts	Re-presentment of the same amount	Variable amounts within agreed limits
Reversals	Indemnity claims under the Direct Debit Guarantee, potentially months later	Settled payment, with scheme-level protections
Data	Reason codes	Real-time payment status, plus account data where the customer consents
Reach	Near-universal	Around 75% of current accounts in Wave 1

The gains are real. A supplier using cVRP knows within seconds whether a payment worked, so it can retry intelligently: on payday, for a smaller amount, or after a nudge. It can take payment when the customer can afford it rather than on an arbitrary date. Customers get transparency and control, which builds trust and reduces the shock-bounce-complaint cycle.

But three things don't change.

Customers still run out of money. A faster payment rail doesn't make a household with £1,800 of energy debt solvent. It just tells you sooner.
Direct Debit isn't going away. With 75% coverage at launch and five decades of customer habit, enterprises will run Direct Debit, cVRP, cards and Pay by Bank side by side for years. The challenge becomes orchestrating several rails, not replacing one.
Risk still lives in the book. The question a CFO actually asks isn't "which rail did this go over?" It's "which customers will fail to pay next month, how much is at risk, and what should we do about it now?" No payment scheme answers that.

This is where most VRP commentary stops. It is also where the real work for enterprise billers begins.

What enterprises actually need: collections and risk as one system

The next generation of recurring payments won't be defined by a rail. It will be defined by joining up three things that have always lived apart: how money is collected, what the biller knows about the customer, and the decisions it makes about risk. We see five capabilities as essential.

1. Rail-agnostic orchestration

One integration that can collect through cVRP where it's available, fall back to Direct Debit where it isn't, and offer Pay by Bank or card for one-off top-ups and arrears. The customer sees one simple experience. The biller sees one ledger, with automated reconciliation across every rail.

2. Real-time, consented account data

With the customer's permission, Open Banking account information shows income timing, regular outgoings and balance trends. That turns "collect on the 1st" into "collect the day after salary lands", and lets a supplier set fixed payments from evidence rather than estimates.

3. Dynamic risk scoring across the whole book

Every account should carry a live view of its likelihood to pay, updated as payments succeed, fail or shift and as account signals change. Not a credit check at onboarding and silence after. The aim is to spot the customer heading for difficulty weeks before the first missed payment, when a small change of plan is still enough.

4. Intelligent, compliant collection strategies

Risk insight is only useful if it drives action automatically: smart retries timed to affordability, variable amounts within VRP limits, proactive payment-plan offers, and early referral to support for customers who may be vulnerable. All of it must be auditable against Consumer Duty and Ofgem's expectations on ability to pay.

5. A feedback loop

Every collection outcome should improve the next decision. A model that learns from live book performance gets better at telling "can't pay" from "won't pay" from "paid late because of timing". Each needs a very different, and very differently priced, response.

This is the thinking behind fumopay and Likuid. fumopay is an FCA-authorised Open Banking payment institution that brings Pay by Bank, VRP and real-time account data into a single platform for businesses modernising how they move money. Likuid builds on that foundation with one connected system for credit risk and payments: AI scoring and real-time decisioning that learns from live book performance, combined with payment orchestration across all rails, automated retry and reconciliation.^[13]

The point isn't to sell a faster Direct Debit. It's to give enterprise billers what Direct Debit never could: sight of their risk while there is still time to act on it.

The billers who move first will set the standard

Direct Debit will be part of UK recurring payments for years to come, and it deserves respect for what it has done. But the conditions that made it sufficient have gone. Energy debt is at record levels, regulators expect early intervention, and finance teams need real-time answers.

Commercial VRP gives enterprise billers, energy suppliers first among them, the opportunity to rethink recurring collections from first principles. The winners won't simply bolt VRP onto a Direct Debit-era process. They will treat payments, data and risk as one system: collecting in real time, seeing trouble early, and acting before arrears harden into bad debt.

The rail has changed. The question now is whether enterprises change the way they think about the book.