Direct Debit is an automated payment transfer system giving businesses permission to collect payments directly from a customer’s bank account. It is ideal for memberships, regular subscriptions and instalments.
Direct Debit is the most popular way for businesses to collect recurring payments from customers. The controlled nature of Direct Debit reduces instances of late payments significantly, whilst cost-spreading offers a continuous stream of income for businesses and easier payment chunks for customers.
What is Direct Debit?
A Direct Debit is an instruction from a customer to their bank, giving express permission for an organisation to take varying amounts from their account, as long as advance notice has been given of the collection.
Direct Debit is not the same as a standing order
Direct Debit is often confused with a standing order. Both are automated payments, but that’s about as similar as the two get:
- A standing order is an instruction set up by the customer, allowing their bank to make fixed payments to a service provider over a set period of time. It is controlled completely by the customer.
- A Direct Debit must be set up by the service provider taking the payment after a mandate has been signed by the customer. The service provider can adjust payment frequencies and amounts, giving them more flexibility than with a standing order.
Direct Debits are collected directly from customer’s bank accounts.
Direct Debits are processed through Bacs – the body responsible for overseeing automated payments in the UK. As such, all payments must adhere to strict guidelines known as the Direct Debit Guarantee and payments are collected bank-to-bank, cutting out the need for complex card networks. This has several benefits.
- It carries considerably cheaper transactional fees
- It cuts down the amount of missed payments caused by expired cards
- It’s safer for businesses and for customers
Why do businesses prefer Direct Debit
Direct Debit puts control in the hands of the service provider, reducing reliance on customers and reducing the number of lost payments.
Direct Debit is automated, reducing administration and allowing staff to focus their attention on other areas of the business.
Payments can be easily adjusted in line with price drops and increases.
Direct Debit is cheaper than other payment methods, such as cheque or card.
It’s paperless so there’s no need to find space for filing and storage – great news for businesses and the planet.
Direct Debit is attractive to customers due to its ease and cost-effectiveness.
Which businesses are eligible for Direct Debit?
All UK businesses are eligible to apply for Direct Debit. In order to do so, they must request a unique identification number from their bank, known as a Service User Number (SUN), to distinguish their organisation from others using Direct Debit. If this is not granted, then they can look to work with a Direct Debit bureau, such as DFC, and use their SUN instead.
DFC is part of Transaction Services Group (TSG), a leading revenue management solutions provider across Australasia, the UK, Europe, and the USA. DFC offers a full revenue management service across the customer journey. Its purpose is to drive up customer acquisition as well as manage and maximise customer revenue.
As Direct Debit experts, DFC takes pressure off organisations by handling billing, customer service and credit control, whilst offering cutting-edge solutions that benefit businesses and customers. DFC reduces the Direct Debit joining process to just three minutes for customers, whilst increasing the average length of membership by three months.
For more information on how DFC can help your business, visit debitfinance.co.uk