Direct Debits or Recurring Card Payments

When your business has the need to collect payments from customers on a regular recurring basis there are a number of payment collection methods you can choose including Direct Debit and Continuous Payment Authorities. The method you choose is often determined by your business model.  Direct Debit offers an automated collection run, usually via a regular manual upload to your Direct Debit portal, advise of account changes and closures are notified to you via an automated method and the customer is protected by the Direct Debit Guarantee.  There’s no doubt that the collection method works but having a Continuous Payment Authority and managing your payments via a Recurring Card Payment system can often be much simpler for your business and more suitable for your customer.

Applying to take Direct Debits? Acceptance isn’t guaranteed

You will need to be approved by your bank to collect payment via Direct Debit and will need an approved infrastructure, standard documentation and mandate and must follow the Direct Debit rules set down by BACS.
Banks can be very risk averse and not all of their business customers will be authorised to collect by Direct Debit.   They often require minimum turnover levels and strong balance sheets.  Setting up a Direct Debit facility also allows companies access to obtain funds directly from their customers’ accounts. As a result, banks usually require that companies have been successfully trading for a number of years to obtain a Direct Debit facility. It is possible to outsource the Direct Debit collection to a third party. However in this instance, the charges are much higher and any financial advantage of using Direct Debits rather than recurring card payments is lost.

Will your customers accept Direct Debit as a payment method?

While Direct Debit is a good form of collection for B2B it is not as effective for B2C.  Many individuals will simply not sign a Direct Debit mandate. Typically, businesses collecting money from consumers see an uptake of between 60% and 80% for Direct Debits.  This depends on the demographics of the person being asked to pay.  Typically the less wealthy in society are less likely to sign a Direct Debit mandate.  There is a good reason for this.  Many bank account holders have had Direct Debits returned unpaid when they have insufficient funds in their accounts.  This means the banks will impose significant bank charges.  In the worst case scenario, these charges can take the account holder overdrawn and then the bank impose even more charges.  Bank account holders who have experienced this situation blame the Direct Debit system and the lack of control it gives them over their payments and often resolves never to pay by Direct Debit again.

How can Recurring Card Payments help?

It is often much easier as a business to get a credit card processing account (merchant account) from an acquiring bank than it is to get approved to take Direct Debit.
Recurring payments offers a cheaper automated collection process than using a third party for Direct Debit and gives the customer the flexibility to pay by credit or debit card.  If they don’t have enough money in their bank account the card will simply decline, you can then automate a retry for another day without your customer incurring bank charges. Continuous Payment Authorities now provide the same level of protection to customers as Direct Debits. The ConnectPay Recurring Card Payment system automates the payment process from start to finish. All the reports you need to manage the accounts and balances are included and the system is flexible and allows for automated retries for failed payments.

Conclusion

Both Direct Debits and recurring card payments have their place when it comes to collecting money.  For B2B collections Direct Debits remain the sensible option.  However if a business is unable to obtain a Direct Debit facility directly from a bank or they typically collect money from consumers then recurring card payments can be a viable option, even if it is only to address those account holders who refuse to complete a Direct Debit mandate.  

To find out more please complete the online request for information or view the animation on our recurring card payments page. 

Call us today on 01628 820600
or complete our online request form for information.

payment systems