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What is an instant direct debit?

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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 editedFeb 20232 min read

Direct debit, or “authorized withdrawal”, involves a bill payer authorizing another party to take money from their bank account at regular intervals.

Unlike card transactions, instant direct debit payments are not generally possible. It generally takes a few days for the payment to clear. Plus, the payee needs to give the payer advance notice before the payment process is initiated.

In the US, direct debits are paid via ACH (automated clearing house) transactions. These are not instant direct debits, and they can take more than 3 working days to clear. However, the benefit of ACH payments over other methods, such as cards, include lower processing fees and failure rates, which can have an outsized impact on cash flow and your bottom line. In order to cut down on the processing time involved when receiving ACH payments, it’s important to submit your ACH file to the bank before the daily cut off date/

Can an instant direct debit transaction be used for one-off payments?

Direct debit offers a convenient way to pay bills, instead of having to pay by paper check, cash, or via card, online or over the phone. It’s a form of payment used by many businesses, charities, clubs, and organizations.

While it’s not possible to set up an instant direct debit, direct debit is great for recurring bills, for example fixed subscriptions like Netflix or Spotify. Payers only need to provide their bank details once, and then they’re entered into an agreement whereby their account gets debited on a regular basis, whether annually, monthly, weekly or any other requested interval.

You can also set up a direct debit to collect a one off payment, but as we’ve noted, this won’t be an instant transaction.

While the ACH network makes it difficult to achieve an instant direct debit, same day processing can help to bridge the gap. This is only applicable to ACH credit payments, however. Same day ACH does have some limitations, including a transaction limit and extra fees (plus, not all US banks participate).

If you need to initiate a one-off instant payment, a better option could be to use Instant Bank Pay, which is a service GoCardless offers to US customers who want to collect payments from the UK. These payments are confirmed instantly, making them a stress-free way to collect ad hoc payments. Instant Bank Pay is powered by open banking, highly secure and versatile technology that is revolutionising the world of payments.

Best ways to make instant direct debit payments

In order to get started with direct debits you can use a processing partner like GoCardless, or work with your bank. You’ll need to validate your customer’s bank account information before you can use online ACH debit, which can take a few days.

It’s essential to submit an ACH file in the correct format and ensure that the customer has sufficient funds in their account, so that the ACH debit doesn’t fail (and add to the collection time). It’s also important to factor in holidays, and weekends, because ACH requests aren’t processed on these days.

Are direct debits instant?

ACH payments are not instant. However, they have many advantages over other types of payments. For example:

ACH debit payments are cheaper and more reliable than bank transfers (which can be faster).
They can be used to collect payments on scheduled days, and, while they require a little planning ahead, ACH debit actually reduces the time to get paid, compared to cards.
ACH debit puts you in charge of collecting payments, rather than having to wait for a customer to authorize a card payment to you. Direct debits are controlled by the receiver of the funds, i.e., the payee who pulls money from the payer’s account.
ACH debit transactions generally settle a day faster than ACH credits, where the payer originates the transaction and pushes money from their bank account to the company they’re paying.

Instant direct debits may not be a reality at the moment, but they offer a convenient and efficient way of collecting recurring payments. Minimal set up is involved, and once in place, no further input is required from either you or your customers.

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.