Recurring card payments vs Direct Debit – the winner is…

Direct Debit and recurring card payments are amongst the most common methods of making regular payments. Whilst the concept of both is similar, there are slight variables between the two which cause confusion time and time again.

So what’s the difference?

  • Direct Debit – by signing up to Direct Debit, you give an organisation the authority to take money directly from your bank account. Payment times and quantities can be fixed or flexible, but advance notice must be given to you prior to any changes in the amount debited. You have the right to cancel at any time.
  • Recurring card payment (also called a continuous payment authority (CPA)) – recurring card payments operate in a similar fashion, except you give a company or organisation the permission to take money from your debit or credit card. Amounts can be variable and you have the right to cancel at any time.

Choosing between the two comes down to whether you would rather go through a bank (Direct Debit) or a company (CPA). Ultimately, however, you’re guaranteed a much stronger safety net with the bank. This way, you have a middleman orchestrating the process. In fact, the Direct Debit process offers greater protection overall.


Make the right decision

A recurring card payment gives companies the authority to charge whatever they want, whenever they want.

This is also true of Direct Debit of course, but stronger safeguards hinder wayward activity. The Direct Debit Guarantee acts as a failsafe so that if an error occurs, you’ll receive a full and immediate refund of your money from your bank rather than the company itself.

Moreover, expect a bigger slog on cancellation, particularly if you’re also thinking about cancelling your credit card. A bank won’t cancel your card instantly. It will likely take a few months to ensure all payments have been processed. Recurring card payments can still take place in this time, forcing your account to stay open for longer.

Finally, it’s worth considering the failure rates and costs of a CPA. Recurring card payments characteristically go hand-in-hand with a monthly fee for a merchant account, as well as a 3% margin and 20p cost per payment. You can also expect a 5% failure rate. On the other hand, Direct Debit charges less than 1% per transaction with a failure rate less than 1%.

If you feel your company could benefit from streamlining its payment process, give us a call on 01908 422 000.

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Direct Debit processing timescales

Last year, a record 6.22 billion Direct Debit transactions were made in the UK. This is due in part to its sheer ease of use and airtight processing system, making billing and administration a doddle. You see, Direct Debit isn’t considered amongst the safest payment methods for nothing.

Behind-the-scenes, Direct Debits are processed in three stages. This comes into play for existing mandates, new mandates, accepted payments and rejected payments. Let’s explain further.


Bacs three-day cycle

Designed in the 1970’s, Bacs three-day cycle offers a Direct Debit processing timescale starting from the submission of a payment until the final account entry stage. It works like so:


Day 1 – input: Payment requests must be submitted to Bacs between 7:00am and 10:30pm. This info is dispatched to recipient banks overnight

Day 2 – processing: Data is then processed and the bank prepares to respond as necessary.

Day 3 – entry: Payments are debited from the payer’s bank account and credited into the merchant’s account.

It all sounds very simple and in an ideal world, it would be. But as we all know, payments sometimes bounce. In this case, the process will follow through as normal and the payment will still be credited to the merchant’s account.

It then falls on their bank to set the payment reversal in motion. This reversal operates in a similar fashion to the above and, in most cases, takes three working days to clear:


Day 3: Soon after the payment has been credited, a payment failure is submitted. In very small instances, this won’t take place until the following day and will push the process to four-working days.

Day 4: The merchant receives notification and further details on the payment failure through a payment failure report.

Day 5: Payment is debited from the customer’s account and credited back into the merchant’s account.

If a failure report isn’t received by the merchant in this time, then the transaction can be considered a successful one. Remember, submissions won’t be counted on working days. For more information on the Direct Debit process, get in touch with DFC on 01908 422026.

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