We’ve partnered with GoCardless to help our customers get paid on time by adopting Direct Debits. But is this the right payment collection method for your business?

This blog looks at the advantages of using Direct Debit payments, and some of the background into setting one up.

Why choose Direct Debits?

Direct Debits are pull based

This means you can pull payments from your customer’s bank account rather than waiting to be paid.

Your customers will give you a mandate, also known as a Direct Debit Instruction. This is an authorisation for you to collect future payments from the customer’s bank account.

This is simple, and the details are standardised for each payment authorisation once you’ve received a mandate.

  • All future payments are authorised, so you can collect any payment at any time.
  • That said, you’ll need to notify your customers before each payment is taken.
  • Each of these payments is protected by the Direct Debit Guarantee, which protects your customers from any payments taken in error.

With most Direct Debits, the customer will give you a schedule of when payments can come out – like a subscription or pay date – when the mandate will be authorised for you to take.

Once you’ve got your mandate, your customers don’t need to do much more. As a vendor, you’ll trigger these payments as and when they’re due. This puts you in charge of your cash flow, and means you can reduce the number of late payments you encounter.

You can also be flexible with your Direct Debit payments, as they can vary in amount and their frequency. This makes them better suited than standing orders, whose payment value is fixed remain the same.

Alternatively, you can automate the payments and reduce admin for both yourself and your customer. This is particularly useful if you’re handling monthly subscriptions or recurring payments, as you can set the same amount of money to transfer from the customer’s account at the same time each month.

Direct Debits are bank-to-bank

There’s no card networks involved in a Direct Debit transaction, which means all the money goes from a customer’s bank and into yours through what’s called the Bacs clearing scheme.

The Bacs clearing scheme is an electronic system that sends payments directly from one bank to another. Direct Debit is one of the main payment types, with the other being Bacs Direct Credit.

This normally takes 3 working days, so take that into consideration when budgeting for upcoming payments. Despite the slight delay, there are a number of advantages, including:

  • They’re low cost, primarily because they aren’t going through a card network to get to you. The UK’s most popular Direct Debit provider, GoCardless, provide a rate of just 1% per transaction (capped at £2) – which is peanuts really.
  • Anyone with a UK bank account (including UK businesses) can pay by Direct Debit – which can’t be said for credit cards or some other payment methods.
  • Direct Debit tend to last longer than ongoing card payments. There’s no loss caused by card expiry, which means businesses using Direct Debit tend to experience higher customer retention.

How can you use Direct Debits?

Here are some of the ways your business can adopt Direct Debits and start getting paid on time:

  • If you’re an agency that doesn’t need an instant payment, you can use Direct Debits to set up invoices for your services.
  • If you’re a wholesaler, you can automate your payment collection from regular customers for a simpler way to get paid.
  • If you’re a membership organisation or a publication that takes regular payments, then introduce subscriptions for regular payments that don’t require maintenance.

As the UK’s leading provider of Direct Debits, GoCardless are the obvious choice for the majority of sole traders and small businesses. But they’ve only become market leader, and held their position, by offering a simple yet effective online interface that makes Direct Debit cheaper and easier to access than ever before.

As a KashFlow customer, you can automatically reconcile your Direct Debit payments with your invoices for less admin and quicker payments. You’ll also access great benefits like:

  • Automated payments
  • Real-time notifications
  • Increased customer loyalty!

You can learn more about the GoCardless and KashFlow partnership here.

See how IRIS KashFlow works with your business and your books