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What is Direct Debit?

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David and his team manage relationships with banks, scheme providers, and other parties involved in payment transactions in the UK and Scandinavia. David has worked in the finance and payment industry for over 12 years, primarily focusing on the BACs and Faster Payments schemes. He has sat on governance committees and chaired cross-government public sector working groups. David is also a regular attendee at the SIBOS and MoneyLIVE financial conferences. ConnectSee full bio

Last editedAug 20241 min read

Direct Debit is an automated payment collection method allowing businesses to withdraw funds directly from customers' bank accounts. It's beneficial for businesses due to its cost-effectiveness, suitability for varied payments, and ease of automation.

GoCardless is a service that facilitates these Direct Debit transactions. We provide businesses with a simple interface to manage and automate their payments, potentially improving their cash flow and customer retention.

Furthermore, GoCardless is user-friendly and customisable, emphasises security and compliance, is regulated by the Financial Conduct Authority and holds ISO27001 certification. Customers can authorise a Direct Debit request with GoCardless through a straightforward process.

The system has two key features, from which almost everything else follows:

Direct Debit is pull based - once given a mandate by their customer, it is the merchant who initiates Direct Debit payments. The customer doesn't need to lift a finger.
Direct Debit payments are bank-to-bank - there are no card networks involved in the Direct Debit scheme. All communications happen directly between the banks.

How to collect Direct Debit payments with GoCardless

1.

Create your free GoCardless account, access your user-friendly payments dashboard & connect your accounting software (if you use one).

2.

Easily set up & schedule Direct Debit payments via payment pages on your website checkout or secure payment links.

3.

From now on you'll get paid on time, every time, as GoCardless automatically collects payment on the scheduled date. Simple.

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Direct Debit is pull based

With Direct Debit, it is the merchant who initiates payment collection. This "pull-based" nature has considerable benefits:

Cash flow. Direct Debit puts the merchant in control of when they are paid and can reduce the number of late payments they receive.
Automation. The entire collection process can be automated, reducing admin for both the merchant and their customer.
Flexibility. Unlike standing orders, Direct Debit allows the payment amount and frequency to be varied, keeping the merchant in control.

The pull-based nature of Direct Debit also necessitates strong customer protection. This is provided by the Direct Debit Guarantee.

Direct Debit payments are bank-to-bank

Direct Debit operates through the Bacs clearing scheme rather than through the card networks. This has significant benefits when taking payments on an ongoing basis:

Low cost. Since Direct Debit payments are not routed through the UK's expensive card networks, they are extremely cheap.
High retention. Churn due to card expiry is completely eliminated, so Direct Debit relationships last longer than ongoing card payments.
Anyone can pay. Anyone with a UK bank account can pay by Direct Debit, including any UK business.

Using the UK's bank-to-bank infrastructure, rather than the card networks, also has a disadvantage: Direct Debit payments are not instant.

Direct Debit payments through GoCardless

GoCardless is an online Direct Debit specialist that manages the entire collection process on your behalf. Merchants can either collect and manage their payments using a simple online tool or can integrate with our REST API.

Click here to find out more about collecting Direct Debits with GoCardless.