End the waiting game: streamline payments with Direct Debit

For most small businesses – too many, in fact – getting paid means invoicing customers and relying on them to manually process the payment, probably by bank transfer, but often by credit card.

This often gives rise to a spiral of admin and anxiety that will be familiar to many readers. Send the invoice, wait and see. Pick up the phone or tap out an email to chase. And then wait some more.

This waiting game leads to late payments and cashflow crunches. But it also costs businesses more than money because chasing late payments diverts precious time and resources, both of which are in short supply for small businesses at the best of times.

The good news is that it doesn’t have to be this way. In this article we’ll explore how Direct Debit’s versatility and reliability can ensure you get paid on time, every time, whether you’re collecting recurring payments or one-offs. And all with minimum fuss.

Direct Debit: The facts

Direct Debit is a simple, secure and convenient “pull” payment method that allows businesses and organisations to automatically collect payments from customers’ bank accounts with their prior authorisation.

Most of us are familiar with Direct Debit as the way to make or collect regular, fixed payments. Our gym memberships, utility bills, subscription services and meal-delivery boxes – all these services and dozens like them are usually paid by Direct Debit. These businesses trust Direct Debit because it reduces the risk of late or missed payments arising from relying on customers to manually process payments. It also offers payers a hassle-free experience.

What’s less well known, however, is how the same things that make Direct Debit great for regular, fixed payments also make it great for one-off and even variable payments.

Using Direct Debit for one-off and variable payments

Let’s say you collect one-off payments that are charged at a later date. Perhaps you invoice customers once the service or product has been delivered. Direct Debit allows you to set up the payment at the point of sale but then automatically charge the customer on the agreed date.

Direct Debit also allows you to change the amount or frequency of a payment without needing additional authorisation. As long as you give customers the required advance notice then you can take payments of any amount, whenever you need to.

That makes Direct Debit a great option if you need to ask for additional ad-hoc payments for goods or services delivered outside of customers’ regular payments, or just collect payments at irregular intervals. It’s also ideal if you charge customers depending on monthly service usage or billable hours, or need to allow customers to top-up their accounts with one-off payments.

Save time chasing late payments

As we’ve seen, relying on customers to manually process payments leads to delays that put pressure on cashflow and resources. It creates cashflow stress for business owners, and takes up headspace that could be better spent on strategy and driving growth.

Automating payment collection with Direct Debit puts your business, not your customers, in control of incoming payments. Its “set-and-forget” nature mostly eliminates late payments, ultimately meaning no more time wasted chasing customers.

Save time on admin

The reliability of your chosen payment has a big impact on whether you’re paid on time and the amount of manual admin you’ll have to handle. Failure rates with Direct Debit can be as low as less than 3% compared to as high as 7.9% with cards. (The fees are cheaper than cards too. Credit card payments cost around 2-3% plus a flat fee of 20-30p per transaction. Direct Debit can cost much less.)

Meanwhile, integrating Direct Debit collections with your accounting platform also paves the way to automating bank reconciliations and other financial admin, helping businesses to spend 59% less time on financial admin.

Save money

Finally, while getting paid via the invoicing and bank transfer method may appear to be free, it gives rise to significant costs in the shape of staff time spent chasing late or missed payments. Research by Forrester has shown that the monetary cost of chasing late and failed payments is 11% - 15% of the value of the recovered funds.

Direct Debit’s high payment success rate and automated processes mean payments are always paid on dates set by yourself, reducing late and failed payments and the costs associated with recovering them.

You can start today

If you’re spending too many late nights chasing late payments or catching up on admin, you can find out more about Direct Debit in GoCardless’ Introduction to Direct Debit. It’s a practical guide packed with tips and real-life stories from businesses who use it, as well as more information on how you can get started today.