Last editedJan 20232 min read
Whether you’re a single-unit landlord or a full-time property manager, setting up rental payments is a core task. From cheques to BPAY, there are many ways to get paid, but not all are equally reliable. Using direct debit for rent payment makes sense on multiple levels. Here’s what you should know about rental agreements and payment methods before you set up direct debit for rent.
How does direct debit work?
A direct debit is a type of bank-to-bank transaction that allows a merchant to debit, or pull, money from the payer’s bank account. When an Australian rental agreement includes a direct debit mandate, this enables the letting agent to take regular, recurring rent payments from the tenant’s account. All of this is done with full approval from the account holder, who signs an agreement instructing the bank to deduct this money until the debit is cancelled.
Why should you accept direct debit for rent payments?
Whether you’re comparing card payments, a standing order or direct debit for rent, you’ll see that there are plentiful benefits to direct debit.
Letting agents retain control over rent payments: Instead of relying on the tenant to make payments on time and with the correct reference number, you’ll remove all uncertainty from incoming payments.
Automating rent payments reduces admin: Alternative payment methods like cash and cheques involve written deposit slips and receipts, increasing your paperwork. By automating payments using direct debit, you’ll save a load of time. In fact, GoCardless merchants spend 59% less time on financial admin overall.
Automatic notifications about payments: If tenants cancel their direct debit, using a service like GoCardless ensures you are notified and have the chance to get in touch before payments fall behind.
How to set up direct debit for rent
Historically, direct debit was difficult for landlords to access, only available to larger businesses through Australia’s main banks. The advent of technology means that service providers like GoCardless now provide easy access to direct debit. Tenants fill out a mandate form with their banking details, allowing property managers or landlords to control the amount and timing of rental payments each month.
To get started, both renter and rental provider must enter into a rental agreement which spells out how the rent will be paid. This should clearly state any additional fees or costs associated with the method of payment, and any future changes must be agreed upon by both parties.
GoCardless is ideal for taking direct debit rent payments, pulling the funds directly from renters’ bank accounts. GoCardless handles the relationship with the banks, ensuring all tenant information is compliant and stored securely. It also integrates easily with property management software to give you a bird’s eye view of incoming payments and tenant information, all from a central dashboard.
What are the alternatives to direct debit for rent payments?
In addition to direct debit, landlords have multiple payment methods at their disposal.
Some tenants prefer paying in cash, despite the increase in risk associated with handling large amounts of money in person.
Card payments are accepted by some property managers via popular online payment gateways. However, they come with the risk of delay, failed payment and higher fees than direct debit.
BPAY is a manual electronic payment method made either over the phone or online. Tenants need to contact their bank to get a password. This also puts the payment in the hands of the renter, increasing the potential for late or missing payments.
The bottom line
Overall, direct debit offers an array of benefits for landlords and renters alike. It puts payment collection in the hands of the landlord to reduce late payments, while reducing high transaction fees at the same time. Using a service like GoCardless to collect rent offers full payment visibility at low cost, with a higher success rate than alternatives. And by automating your rent collection process, you can free up time to focus on other property management issues.
We can help
GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.