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Everything You Need to Know about Direct Debit System

Everything You Need to Know about Direct Debit System

February 5, 2022

Why should your business use direct debit?

The advantages direct debit system brings many conveniences for your business, but more importantly, it also benefits your end customers. As mentioned above, direct debit is a pre-authorized payment system, so your customers won’t have to worry about forgotten invoices. On the other hand, your business doesn’t have to spend unnecessary time chasing outstanding payments.

Such benefits are possible thanks to the direct debit system that automatically takes agreed payment amounts on set days. Your customers can rest assured and have peace of mind that their payments are taken care of. They won’t be at risk of forgotten invoices or late fees.

Moreover, since direct debit allows customers to set their payments automatically, it can help them budget and plan their expenditures. They also don’t have to worry about fraud since direct debit is a safe and secure payment method. Your customers are protected by a number of direct debit safeguards.

How does direct debit work?

The way direct debit work is quite simple yet thorough. The first and the most important thing before it works is to gain consent between the customers and the business by signing an agreement. The agreement will include the amount, frequency, and duration, which is later followed by choosing the cloud payment provider.

The provider will pass the request to the customers’ financial institution. The institution will check the balance of the customers’ accounts. Later, suppose the funds are available, and the business has already fulfilled the deliverance of their product or services to the customers. In that case, the cloud payment provider will collect the funds and deposit them into the business’ bank account.

Finally, the funds settle into the business’ bank account based on their chosen settlement day selected during the application process.

What are the benefits of direct debit for your business?

You might think that direct debit benefits only makes the payment simpler for the customer. However, the direct debit system is quite beneficial for both the customers and the businesses.

●   More constant and reliable cash flow

Since the businesses can set when the payment has to be done, the direct debit products will improve the speed and amount of the businesses’ inbound cash flow. It will also give a more accurate forecast of incoming revenue and outgoing expenses.

●   No more awkward money chat

Sometimes a business has to chat with their customers about the late payment or unpaid invoices. Instead of reminding the customers to pay their monthly invoices, the business can receive funds on a set schedule that helps both of them.

●   Flexible

Recurring payment does not make the direct debit system a rigid and inflexible solution. The business can adjust the payment terms throughout the life of the contract. You can easily tweak payment schedules to suit the customers’ commitments if necessary.

●   Engage retention

As a simple payment method that can be renewed and maintained over a long period, the customer does not have to set up direct debit payments to the business continuously. An automated direct debit system will encourage customer retention and improve recurring revenue.

●   Inexpensive

You can tailor the direct debit system according to what your business needs. It will create a more affordable system that is easy to integrate. The system is also cloud-based, so there’s no additional hardware necessary.

●   Secure payment method

Both the customers and the business get a guaranteed payment method. The customer is not necessarily put a PIN on it, so there is no chance of data leaks during the payment. Also, the direct debit system will always take payment according to the agreed amount, so there is no chance of incorrect payment.

Is direct debit safe?

Many businesses are concerned about their security and safety on the payment processing options. Also, modern cybersecurity threats have become more sophisticated and create unbelievable creative ways to scam or trick their victim.

There is no better and safer payment method than the direct debit system. Since it doesn’t require card numbers, passwords, PINs, or other sensitive data, the direct debit system creates a highly secure and reliable payment solution.

The direct debit system is a better solution to maintain a good cash flow for many businesses, especially for small and medium business that relies on the customers’ payments to keep the wheels going round and round. As a simple and sensible alternative, the direct debit system will give the business complete control over payments, including recurring payments. Have you ever experienced late payments, especially the important ones, which affect your business cash flow?

Such an inconvenience wouldn’t have happened if you had implemented a direct debit system. Many businesses have problems with late payments or unpaid invoices, which directly prolongs their cash flow. If you keep letting this happen, it can potentially lead your business to serious debts and, God forbid, bankruptcy. However, business owners can now define when they get paid and make payments, thanks to the direct debit system.

For some, the direct debit may sound unfamiliar. However, this system is actually more common than you might think. Direct debit is most commonly used for “set it and forget it” bill payments, making it easy for you to pay recurring bills. Some direct debit use cases include regular bill payments such as car loans and fixed subscriptions such as Spotify and Netflix.

So, how does the direct debit system work? More importantly, is it safe for both the businesses and the customers? Let’s take a deep look at what direct debit is below!

What is direct debit?

A direct debit system is a pre-authorized payment set to a fixed or varying amount, paid to a business by a customer for an agreed amount, frequency, and an agreed period. In other words, the customer gives consent to draw their money from a debit/credit card or a bank account under a direct debit agreement.

Direct debit is often used for almost everything, mostly on regular or recurring payments. The quick example of direct debit for end customers is the convenience of never having to worry about missing a due date on rent fees. No more late payments so it can give them a peace of mind.