Guide to direct debit management software

From utility bills to rental payments, millions of businesses and individuals alike use direct debit every month. If your business collects direct debit payments, you’ll need a system to appropriately manage the complexities of these transactions.

In this guide, we’ll break down the uses of direct debit management software as well as its numerous benefits.

When do you need a direct debit management system?

Direct debits go by many different names, including ACH debits, automatic transfers, auto-pay, and authorized withdrawal. No matter the name, this payment method occurs when a bill payer authorizes payment to be withdrawn directly from their checking account. Payment can be taken at regular intervals over the ACH network, making this a convenient way for the bill payer to keep on top of payments without the need to remember their due dates each time.

While direct debit offers a set-it-and-forget-it level of convenience for the payer, the situation can be more complicated when your organization needs to keep track of hundreds of payments each month. You’ll need a system in place for managing direct debits, starting with gaining the initial authorization from customers including their bank details. Managing direct debits also involves sending advance notice letters, issuing transaction codes, and balancing payments in your accounting books. Using direct debit management software helps automate all aspects of this process for easier management.

What is direct debit management software?

Direct debit management software helps facilitate and track bank debit payments. Direct debits use the ACH network, which connects accounts between different financial institutions. Direct debit software manages the various steps for payment collection:

1. The customer agrees to make ongoing, recurring payments for regularly billed services.

2. The customer signs a mandate or authorization form agreeing to automatic direct debit collection.

3. The business submits anACH debit request when payment is due using an Originating Depository Financial Institution (ODFI) approved third-party processor, like Dwolla or PayPal.

4. When the request is processed, the ACH network pulls funds directly from the customer bank account and it goes through the settlement process to complete the transaction.

There are multiple benefits associated with managing direct debits automatically:

• Collecting direct debits is more cost-effective than collecting card payments, paper checks, or wire transfers, all of which involve higher fees.

• Direct debit management software automates the process to eliminate the chance of delayed or failed payments.

• Processing time is faster using automated software because you can arrange collection ahead of time for settlement when you need it.

• Direct debit management systems are designed to be user-friendly with streamlined platforms and integration with your accounting software.

Managing direct debits with ACH processors

To get started with integrating direct debit management software into your business platform, you’ll need to compare the options. ACH processing partners help businesses process recurring direct debits using custom APIs. Here are a few of the main options:

GoCardless

With no contract, monthly, or set-up fees and over 200 partner integrations, GoCardless is a natural fit for most organizations. It offers a payment solution allowing businesses of all sizes to collect and manage direct debit payments. GoCardless partners with major cloud accounting and invoicing software including Xero and Salesforce, ensuring you can fit direct debit payment collection into your existing setup. Features like Success+ help businesses cut down on financial admin with AI-driven automatic payment retries, reducing the chance of failed payments.

Dharma

Another direct debit management system to look at is Dharma, which offers a basic ACH processing platform. This can be used to accept checks as well as set up and manage recurring bill payments. If you’re looking for a basic payment processor, Dharma can fit the bill, although it’s not suitable for high-risk industries or more complex management capabilities.

Dwolla

Dwolla is one of the smaller providers specializing in integrating with the ACH network to help businesses send and receive ACH payments. Dwolla works with any US bank account and credit union to manage direct debits, making it a good fit for businesses dealing with domestic recurring payments. Users have reported problems with high fees as their business scales and the international payments functionality, understandable as Dwolla is one of the smallest companies in this list.

Stripe

Stripe is a full-service payment processor that helps manage card payments as well as direct debits. Its strengths include a high level of flexibility and a selection of payment plans. One thing to keep in mind is that Stripe is designed for developers, so if you don’t have one on your business team already, you’ll need to hire a professional to help you get started. In addition, Stripe's size limits the customer support available to its users, which naturally can cause frustrations.

Ultimately, the best direct debit management system will depend on your business’s size and the number of transactions you need to process. As a direct debit specialist, GoCardless offers fast, simple access to the ACH network, making it easy to manage payments through a simple online dashboard.

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.