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Is direct debit safe?

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The GoCardless content team comprises a group of subject-matter experts in multiple fields from across GoCardless. The authors and reviewers work in the sales, marketing, legal, and finance departments. All have in-depth knowledge and experience in various aspects of payment scheme technology and the operating rules applicable to each. The team holds expertise in the well-established payment schemes such as UK Direct Debit, the European SEPA scheme, and the US ACH scheme, as well as in schemes operating in Scandinavia, Australia, and New Zealand. See full bio

Last editedApr 20232 min read

Direct Debit payments are convenient for businesses and customers alike, but are they safe? How do they compare to other popular payment methods? We’ll explore the pros and cons of Direct Debit below.

How does Direct Debit work?

Commonly referred to in the US as a bank debit or ACH debit, a Direct Debit is a popular bank-to-bank payment method. It allows you to collect pull-based payments directly from your customer accounts as they’re due. Direct Debit payments are often used to pay for subscription services, like Amazon Prime or Netflix. They’re equally applicable to membership subscriptions, paying utility bills, or making one-off payments.

To get started, the customer fills out a one-time ACH payment authorization form, either on paper or online. Once authorized, the business can then take payments. Customers are notified when payments become due, but they don’t have to do anything else.

What are the advantages of Direct Debit?

This payment method offers plentiful benefits for merchants. Direct Debit is ideal when you want to take recurring payments, fixed subscriptions, or membership dues. It can also be used to take payments on account, offering flexibility to long standing client relationships.

The primary benefits of Direct Debit are:

The merchant retains control over payments, which are collected on the day they’re due to reduce late payments. This in turn improves cash flow with on-time receivables.
You can take automated payments from customers without additional input, for greater convenience on both ends.
Direct Debit is cheaper than card payments, which incur hefty per-transaction fees. You also have the flexibility to change payment amounts as needed without any added transaction fees or unnecessary admin.

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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What are the disadvantages of Direct Debit?

Like any payment method, there are times when Direct Debit won’t be the best payment method. From a customer’s perspective, there are cons of Direct Debit when applied to monthly plans with interest. For example, if you pay for an insurance policy or spread the cost of appliances and electronics out over several months, the cost will usually be higher due to monthly interest.

From the business’s perspective, these Direct Debit cons can frustrate customers which may lead to a drop in sales. However, for regular recurring payments where interest doesn’t apply, it’s not really an issue. One unique danger is that unlike upfront payments such as credit cards or digital wallets, Direct Debit payments can fail if there are insufficient funds in the account. The decline wouldn’t be immediate as it would be with a card; you wouldn’t know until a few days later in some cases.

Is Direct Debit safe?

You can easily mitigate the cons of Direct Debit mentioned above with a few safeguards put in place. At GoCardless, we offer mitigation tools to prevent failed payments, including automatic retries at a more advantageous time using smart, data-driven intelligence. While there are some dangers, such as payment failures, these are far lower than what you would expect from other payment methods. For example, failure rates with credit cards can be as high as 5% due to expired details and cancellation. By contrast, failure rates drop to less than 1% when you use GoCardless Direct Debit.

Is Direct Debit right for my business?

Most businesses can benefit from Direct Debit payments. This type of payment method is particularly advantageous for businesses that take regular, recurring payments or offer subscription services and is equally applicable to one-off payments. At GoCardless, our Direct Debit system can be set up in seconds and easily integrates into your existing website.

On the other hand, if you’re looking for an instant payment method, you’ll need to remember that Direct Debit transfers can take several business days to settle. If you require an immediate transfer, another payment method might be better suited. Ultimately, the best payment strategy tends to be one that combines multiple methods, catering to all customer preferences.

We can help

GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.