How To Setup Direct Debit Payments For Your Business

Tired of waiting for customers to pay your invoice? With automated direct debits for business, you'll get paid faster and reduce your time spent on admin. Offering direct debit as a payment option for your customer is also more convenient because they won't have to deal with annoying manual payments. It's a win-win for everyone!

What Is A Direct Debit Payment?

A direct debit is an automatic payment that transfers money from a customer to a business (vs a regular payment done manually). As a consumer, they are very handy for paying recurring bills like your phone plan or gym membership.

Automatic direct debit payments mean you don't need to set a reminder to pay a bill, and you also don't risk any late fees (as long as you have the money in your account).

When you set up a direct debit with a company, you're giving them permission to collect payments from your designated bank account automatically, as opposed to having to pay the amount manually.

When you're the company or biller that's offering it as a means of payment, you give your customers a direct debit form to fill out where they select the bank account they want to pay from. You then tell the customer's bank that they've given you the authority to automatically take out the money for their bills.

Who Should Use Direct Debits?

Direct debit payments are great for businesses with regular or recurring billing like gyms, schools, agencies with retainers (like marketing and accounting companies) - basically anyone who sends regular bills with fixed amounts to their customers.

Direct debits have the biggest impact on subscription and membership services, where manually paying an invoice every week would negatively affect the customer experience. For example, gym customers just want to sign up and know they have constant access to the gym.

Why Use Direct Debit For Your Business? 

There are a bunch of benefits for using a direct debit solution such as:

Consistency & Cashflow

They provide consistency in cash flow. With direct debits, you know exactly when and how much you'll be paid, allowing you to better manage your money. Say goodbye to manual invoices, endless refreshing of your bank account hoping that customer funds have landed, and having to follow up with people who haven't paid.

Save Time

They save you and your customers time. Since the payment process is automated, you can both relax knowing it's taken care of, allowing you to focus on delivering exceptional service rather than having uncomfortable money conversations.

More Cost-Effective

It's more cost-effective than processing a credit card payment. A payment gateway for credit cards usually costs 3-5% of the transaction, whereas direct debits are much cheaper.

Flexibility

It's flexible. You're able to change the payment amount and frequency without needing to re-authorise, allowing you to update or increase your payments without annoying admin.

With direct debits, you know exactly when and how much you'll be paid, allowing you to better manage your money.

Are Direct Debits Secure?

Yes! Because direct debits are handled through the customer's bank accounts, everything is very safe. Customers aren't putting in their credit card details or personal payment details on a website which can be at the risk of being hacked (assuming the payment gateway isn't secure). With direct debits, the only thing customers are sharing is their permission to send a payment.

As a company you need to make sure you have secure systems and that your service provider is PCI DSS Compliant, which is a safety certification so your customers know their data is safe.

How Do You Set Up Direct Debit Collection For Your Business?

Setting up direct debit payments is relatively easy if you choose a payment service that can integrate with your current software (such as PayChoice).

First, select a direct debit provider — ideally go with one who can accept other types of payment, not just a direct debit transaction(this gives you more flexibility). Also, make sure they can set up direct debits for a debit card and credit card, not just bank accounts.

Next, you'll send your customers a direct debit request (aka a form to fill out). Once they complete this, you need to provide their direct debit authority to your payment provider to be able to take money directly from their bank.

Once the direct debit arrangement has been authorised you can customise the frequency and amount to be deducted from their account. You can also set which day it will occur, and customers appreciate it when you ask them if they have a preferred day.

Make sure your customer is notified before the recurring payment is requested — this is a great way to prevent failed payments because they're reminded to make sure they have sufficient funds in their account. This saves you time and hassle in chasing them up.

Once these 3 steps are completed, you can start enjoying the convenience and cash flow of direct debits!

What is a direct debit mandate?

In case you hear this term, this is another word for the authorisation that customers give you (covered in the previous step). It gives your payment provider written permission to take payment from your customer's bank account, and it can't be collected until the direct debit mandate has been signed by bother parties. It's also known as a 'direct debit instruction'.

Customers do not like unexpected fees, so make sure you communicate with them effectively.

What Happens If Your Customer Has Insufficient Funds Or Misses A Payment?

If a customer doesn't have enough funds in their account or they miss a payment, the direct debit platform will try again in a few days. If it still fails, the customer can get a dishonour or late payment fee from the bank or financial institution (depending on the platform). You as the company are not penalised for the customer not making payment, but it's super important to stay on top of it.

Why does a failed payment happen? It can be for several reasons. The most common is the customer didn't have enough funds in their bank account. Whilst it can be annoying for you when customers don't pay, sometimes it can happen for genuine reasons and nothing dodgy.

Customers do not like unexpected fees, so make sure you communicate with them effectively. Let them know what fees are for, find out when they will be able to pay, and talk with them about providing an alternative payment method. Customer service is critical here! Even if they have experienced a fee and have become disgruntled, this is a great opportunity for you to connect one-on-one with a customer, and make them even more loyal (when handled correctly).

How Do Your Customers Cancel A Direct Debit Agreement?

To cancel a direct debit, your customers usually need to tell their bank 24 hours before payment is due, then the bank will then tell you that it has been cancelled. Direct debits aren't a contract, the customer has just given authority to take payment from their account (so no legal paperwork is required).

One of the fastest ways to upset customers is making it difficult to cancel their payments. Also, if customer payments come through after the correct cancellation request, make sure you refund any additional payments that weren't meant to be processed.

You can't keep taking payments after customers have cancelled! This sounds obvious, but unfortunately it's not uncommon (even if it's by accident).

PayChoice is the payment solution trusted by over 3000 companies with 15 years experience.

Direct Debit Services With PayChoice

If you're looking for a reliable, affordable and Australian provider, PayChoice is the payment service trusted by 3000+ businesses. Easily set up direct debits, online payment gateways, credit card transactions and real-time payments with industry-leading PCI DSS security.

PayChoice integrates directly with your existing software so you can stop chasing up money, keep your customers happy, avoid double handling and kiss goodbye to tech headaches. And if you ever get stuck, our team will get back to you within one business day. If you're interested in taking your business' payment options to the next level, get in touch with our team today!

Simply click the button to contact our team and we'll put you in touch with a representative asap to help you start your journey.