What’s the best payment option for your business?

A guide to the key payment options for Australian businesses who take recurring payments – and the pros and cons of each.


The system you use to get paid might not be the most glamorous part of your business, but it could be having a huge impact on its performance. The right payment system can help you get paid on time, improve your cash flow and reduce the time you spend on admin. The wrong one could leave you chasing debt and burden you with hours of unnecessary admin.

With technology constantly improving how payments are made and received, you should measure up all your options to ensure you are using the best formula for your business, as well as protecting its long-term health.

To help you choose the right option, we’ve summarised the key contenders for businesses who take recurring payments – and revealed the pros and cons of each.

Cheques

Payment cheques used to be a common way for customers to pay large bills. But the concept of paper-based cheques, instructing a bank to pay a fixed amount, has fallen out of favour. For businesses, processing cheques is manual and admin-heavy.

Cheques account for just 5% of all non-cash payments made each day by businesses or individuals in Australia, according to the Australian Payments Network (APN).

Bank transfers via BPay

Bank transfers are a tried and trusted method of getting paid, with BPay being a popular way for customers to pay their bills.

Customers use their online banking, or give their bank a direct one-off instruction, and make a direct payment to your business account. Bank transfers through BPay are typically fast and easy to initiate, but there’s one key drawback to any bank transfer – it’s the customer who’s in control of when payment is made, meaning that late payments are highly likely.

Standing order

A standing order, sometimes known as a standing instruction, is an automated payment, where customers instruct their bank to pay your business a fixed amount at regular intervals.

Standing orders ‘push’ predefined funds from the customer’s account to your business bank account. To set up an order, your customer contacts their bank – in person, or via internet banking – and then tells them the amount, frequency (weekly, monthly etc.) and date that payments should be made.

Direct Debit (through the BECS system)

Direct Debit via the BECS system is an automated payment option, where you're given permission to take funds directly from a customer’s bank account.

The Direct Debit system ‘pulls’ funds directly into your business account, unlike the ‘push’ method used for standing orders. So with Direct Debit you’re not reliant on your customer initiating the payment – although customers do have to complete a mandate authorising recurring payment (this can be done online). You must notify your customers of the amount and date of payments in advance, but your provider can do this for you.

Once payment has been processed, funds take a few days to clear. Payment amounts and dates are not fixed, so Direct Debit is more flexible than using standing orders.

Automated card payments

Recurring card payments are an automated payment option where customers authorise you to take payment using a saved debit or credit card. They’re generally used for regular payments where convenience of payment is a priority or where invoice amounts may vary.

They can be set up on the phone, in person or online – and all the customer has to do is give their card details once, and then give authorisation for a recurring card payment to be taken.

How do these payment options compare?

Here we summarise the pros and cons of these 5 payment options for businesses.

Pros Cons
Cheques
  • Good for large payments where you want to avoid any large transaction fees
  • Admin commitment manageable if you only have a few customers
  • Banks charge for each cheque cashed
  • Cheques usually take 3 days to clear
  • Amount is fixed by the customer when writing the cheque
  • Lots of manual processes including reconciliation
  • Customer must initiate payment, so you have limited control
  • Late payments are highly likely
Bank transfers via BPay
  • Reliable and fast for customers to set up
  • No associated costs for standard bank transfers (unlike cheques) – though there may be charges for larger sums
  • Customer must initiate payment, so you have limited control
  • Late payments are highly likely
Standing order
  • Automates the payment process
  • Free of charge for both parties
  • Easy and quick for payer to set up
  • Helps collect recurring payments on time (once set up)
  • No payment notifications, so you won’t know if payments are late
  • Inflexible – you can't change the amount or date of a payment without cancelling and setting up a new standing order
  • Risk of late payment due to reliance on the customer setting up the order in the first place
  • High admin due to the need to check if payment has been received (manual reconciliation)
Direct Debit via BECS
  • Flexible: change payment amounts and dates easily
  • Simple for your business to set up
  • Automated, so risk of late payments is reduced
  • Once set up, needs minimal admin
  • Safe and secure – consumers are protected by a Direct Debit guarantee
  • Low cost - typically 1% per transaction
  • Reliable - low risk of failed payments because it's bank-to-bank
  • The first time you take a payment, your customer must fill out a Direct Debit mandate form
  • Cost implication of using the Direct Debit system, although this can be a small as a 1% charge on the transaction (much cheaper than cards)
  • Not ideal for one-off payments where instant clearing is needed (e.g. e-commerce), as it takes three days to collect funds.
Automated card payments
  • Highly convenient for customers – just share their card details and authorise a recurring payment
  • Flexible: change payment amounts and dates easily
  • Simple for your business to set up
  • Automates regular payments so low risk of late payments
~
  • Cost per transaction is high, when compared to standing order or Direct Debit – typically >2%
  • Card expiry dates and credit limits cause high failure rates
  • Admin time higher than Direct Debit due to high failure rates

The best option for your business

Cheques and bank transfers don’t give you control over when you receive payments (although bank transfers may be suitable for larger, ad hoc payments). And standing orders are inflexible, and require manual reconciliation.

For our money (pardon the pun), Direct Debit or recurring card payments are the best options for businesses who need to take recurring payments from their customers. Both automate the payment process, put you in control of when and how much is taken, and are available as online options.

But if you’re trying to keep down transaction costs and you don’t want to worry about having to update customer card details as they expire, then Direct Debit via GoCardless for Xero is a great option for Australian businesses.

Find out more about getting paid by Direct Debit with GoCardless

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