How to Set Up Direct Debit for Small Businesses

How to Set Up Direct Debit for Small Businesses
Setting up a direct debit for your small business can save time and improve customer satisfaction. Discover more today.
by Square Aug 31, 2021 — 5 min read
How to Set Up Direct Debit for Small Businesses

If you want to set up recurring payments from your customers, the best option is direct debit. It’s fast, convenient, and it’s a big hit with both customers and businesses. Here we’ll tell you everything you need to know about setting up direct debits for your customers.

What is direct debit?

Direct debit is a fast and easy way for customers to make payments, and it is primarily used for regular payments. The process involves customers authorising you to take money directly from their bank account on a scheduled basis. It can also be used for one-off payments if necessary. It offers a fast and convenient way to ensure customer payments are made regularly without fuss.

Benefits of direct debit for small business

Direct debit for small business offers a range of benefits. Of course, it depends on the type of business you’re operating. Direct debit isn’t going to be worthwhile for everybody. However, many businesses see the benefits of direct debit every day.

1. Better control of cash flow

Firstly, you have a much better control of your cash flow when you use direct debit payments. Cash flow is the money that flows in and out of your business on a daily basis. Since you can already forecast most of your expenses and when they fall due, forecasting income is the last piece of the puzzle. Direct debit allows you to see clearly how much money is coming in and when.

2. Get paid faster

Direct debit is considered faster than most other payment methods because it’s automated. While taking a credit card payment is technically just as quick, with direct debit there is no delay on the customer’s end. Often, you’ll spend days chasing a customer for a payment, or they’ll simply be a few days late when paying manually. Direct debit removes this time delay.

3. Increase your sales

Direct debit offers your customers more convenience, and you should never discount how much of a selling point that is. Let’s say your customers need to pay an annual fee for your service. Rather than making them pay in one hit, you can spread it into monthly payments for them. This is appealing to customers, and may help you win some sales against competitors who don’t offer this convenience.

4. Save time

How much time do you spend chasing people for overdue accounts? Most businesses waste hours on this task, but direct debit removes the hassle. Also, by using a solution that integrates with your accounting package, payments are instantly recorded and reconciled. Easy!

5. Great for subscriptions

If you offer subscription services, direct debit functionality is a must. The same applies to rental services. It would be an absolute nightmare to chase customers for payment every month, particularly if this causes delays in preparing and sending items by mail. Rather than cause chaos in your warehouse while you hold deliveries for unpaid accounts, direct debit ensures you always get paid.

6. Better business planning

Perhaps most importantly, direct debit for business allows you to forecast your income much more thoroughly. You can project your sales figures into the future because you know how much money is coming in each month. When planning the next stage of business growth, direct debit gives you an advantage.

7. Fraud protection

Direct debit offers great protection against fraud and unauthorised payments, which is always popular with customers. Plus, it’s easy for them to get refunds for invalid payments. This is another selling point that may help customers choose your business over another.

How does direct debit work?

The process is actually quite simple on both sides. It’s easy for your customers, and it’s easy for you. A customer simply fills out a form, which is usually called a Direct Debit Authority. They provide you with all of their relevant details, as well as the bank account from which they want money drawn. This is the authorisation you need to take money from their account automatically.

You then have the option of notifying customers when a payment is due. Some automated systems might send a text before every payment, but it’s more common that you only notify them when the first payment is due, and the frequency of future payments.

Once everything is submitted, your direct debit provider handles everything else, and money is transferred from the customer’s account to yours on the due date.

Because these are all EFT payments, the customer sees your merchant name on their statement. Depending on your provider, you’ll be charged a small fee for each transaction.

How long does a direct debit take?

Direct debits usually take a few days to clear. So, while it’s technically not as fast as a credit card or online payment in terms of the time funds take to reach your account, many businesses still find the process a lot quicker. Remember, once direct debit is set up, you don’t have to do anything. No chasing customers or waiting for them to make a manual payment.

How to set up direct debit for customers

Setting up direct debit for customers is actually very simple. The process only requires 3 steps on your end, and can seriously transform the way you do business.

1. Choose your Direct Debit provider

You’ll need to do a bit of research to find which provider works best for you, but it’s simply a matter of choosing one that makes the process easy. Being able to access local support is important, as is checking the provider links up with your accounting software.

2. Invite customers to use Direct Debit

With a simple email to your customer list, you can invite them all to start paying by direct debit. The email directs them to a secure form they can fill out online, or alternatively, a paper form they can print and return to you. This is similar to a credit card authorisation form.

3. Request payments

Finally, once the forms are filled out, you can request payments to commence on a certain date through your provider. Each provider usually has a simple tool you can use for this. This process is the same for one-off payments, but in both cases, you need to notify the customer that payment is due to occur.

Can I manage Direct Debit payments myself?

You certainly can, but this is usually reserved for larger businesses. If you want to manage direct debits yourself, you need to pass a series of regulatory checks, and the process is quite intensive. You also need to pay a pretty large band bond, which usually isn’t viable for smaller businesses.

The best option is to choose a direct debit provider who can handle everything on your behalf for a small transaction fee. Most businesses find the benefits they get from offering direct debit payments far outweigh the fees charged by a provider.

How much do Direct Debit payments cost?

Direct debit fees vary depending on which provider you choose. Most of the charges are percentage based, but they’re capped at a certain amount so you don’t end up paying a fortune. One thing to be mindful of when choosing a provider is not just their standard transaction fees, but how they handle dishonoured and failed payments. Some charge, others don’t, so make sure you check their entire fee schedule.

Other payment alternatives

If you decide that direct debit isn’t useful to your business, or you think it would be more hassle than it’s worth, Square has plenty of other options. With Square Payments, you can accept all types of payments quickly and securely. This includes in-person payments, online payments and even over the phone. You can also create and send digital invoices so that customers can pay automatically. In addition, Square Online Checkout allows you to create buttons and links that allow your customers to pay easily from anywhere. No matter what type of business you operate, Square Online Checkout is a terrific way to get paid fast.

The Bottom Line is brought to you by a global team of collaborators who believe that anyone should be able to participate and thrive in the economy.


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