Direct Debit and Direct Credit sound very alike, and so are often confused. In reality, they are almost polar opposites of each other, with very distinct business uses for each. In this guide, we break down the difference between the two and explore the scenarios in which both should be used.
What’s the difference between Direct Debit and Direct Credit?
Where Direct Debit is an electronic withdrawal from a customer’s account, Direct Credit is an electronic deposit into an account.
For example, Direct Debit can be used to take regular gym membership payments automatically from a member’s bank account.
Direct Credit, on the other hand, can be used by employers depositing a salary into an employee’s bank account every month.
So, where Direct Debits are used to pay a business, Direct Credits are used by businesses to pay out.
How does Direct Credit work?
Direct Credit works in largely the same way that Direct Debit does, in that every payment needs to be submitted through Bacs.
To make a Bacs Direct Credit payment, you need to know the payee’s sort code, the account number of the payee’s bank account, the payment amount, and their name. This is similar to making a direct bank transfer, which uses the same information. However, Direct Credit allows you to make payments several times over a period without having to input data every time.
You can either submit payment data through a bureau or directly through in-house software. Following the Bacs payment cycles, the data is sorted and sent to the relevant banks. This data is then processed and the account receiving payment is credited and yours debited.
Should I use Direct Debit or Direct Credit?
This depends entirely on the situation. The table below outlines a few situations in which either Direct Debit or Direct Credit is more appropriate.
|Situation||Direct Debit or Direct Credit?||More|
|Your business has monthly bills that need paying.||Direct Credit or Direct Debit.||You can use either for this purpose. If you want to set up and control the payments, the Direct Credit may be better for you.|
|You must pay regular business taxes.||Direct Credit or Direct Debit.||Same as above.|
|You have several customers who subscribe to your services. They pay regular set fees to your business.||Direct Debit.||Since you are expecting payment into your account on a regular basis, Direct Debit is better. This is more convenient for customers and will result in fewer missed payments.|
|You pay your staff set monthly wages and want to do so automatically.||Direct Credit.||There is a regular amount coming out of your account and being sent to staff members. Direct Credit will help you manage this.|
|You collect monthly bills for variable amounts.||Direct Debit.||Since you are expecting payment into your account on a regular basis, Direct Debit is better. This is more convenient for customers and will result in fewer missed payments.|
|Your business allows customers to pay in instalments or spread the cost of a product.||Direct Debit.||Since you are expecting payment into your account on a regular basis, Direct Debit is better. This is more convenient for customers and will result in fewer missed payments.|
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