Direct Debit: Powering up accounting software so businesses get paid on time

Avoid late payments by leveraging the combined power of Direct Debit and your favourite accounting software, for better cash flow every time.


Late payments are the bane of business owners’ lives. Unpaid invoices cause disruption to cash flow, and even play a part in one in five corporate insolvencies.

This common problem appears to be getting worse – smaller firms in the UK are currently out of pocket to the staggering tune of £26.3 billion. Yet technological developments in accounting software, and greater use of direct payment systems could alleviate this burden, and see companies getting the money they’re owed on time and in full.

Late payments harming small businesses

Almost half of Britain’s SMEs are being paid late, according to Bacs, and it’s a problem that’s been worsening in recent years, research suggests. The Federation of Small Businesses points out that businesses being paid late suffer a number of negative consequences:

  • More than a third (37 per cent) struggle with their cashflow

  • Three out of ten are forced to use their business overdrafts

  • One in five experiences a slowdown in profit growth

Recent governments have made bold commitments to tackling late-paying companies by naming and shaming serial offenders, as well as issuing fines to businesses that habitually use smaller suppliers as a line of credit. But while SMEs wait for politicians to act, they could be doing more to protect themselves by simply improving their payment processes.

Seeking effective, budget-friendly solutions

Peterborough City Council did just that when it decided to integrate Direct Debit into its existing payment system. The council had recently introduced garden waste collection for residents that came with a small charge. Budget constraints meant councillors had to keep payment processing costs down, while maintaining maximum efficiency and convenience for people using the facility. The expense of introducing Direct Debit via the council’s payment provider at the time would have been too great, so James Collingridge, who manages environmental and garden waste services for the local authority, sought an alternative.

Collingridge explained: “GoCardless offered a system that was easy to integrate into our online subscription service, and it offered value for money for taking multiple payments. We also found it easy to navigate, set up payment plans, and link into the API. The lower processing costs mean we can be more efficient with our budget and, with automatic payments renewal, residents don’t need to worry about making the payments on time.”

Direct Debit can integrate with a business or organisation’s accounting software to ensure that invoices are issued, chased, and settled automatically. In this vein, GoCardless is already paired with all the major accounting software platforms. Plus, using Direct Debit flags up immediately if a payment is outstanding, whether it has failed, or even if it has been refused.

Direct Debit powering up accounting software

Clive Lewis, Head of Enterprise at the Institute of Chartered Accountants in England and Wales (ICAEW), believes many firms are still not making the most of accounting software, particularly cloud systems. These allow business owners to share up-to-the-minute information with their accountant so that both parties can work on the books simultaneously. Using these processes in partnership with Direct Debit only increases efficiency further, and can accelerate payment times.

Lewis added: “Working with reputable software companies, such as Xero, Kashflow, Sage, Intuit QuickBooks, and FreeAgent, means that the accounting should be under control. Fundamentally, I think anything that speeds up the receipts of customer payments for SMEs must be a good thing.”

While some companies knowingly wait a while before paying their invoices, failed payments are often down to simple error. Debit or credit cards reaching their expiration dates can cause days or weeks of delay for the entity owed money. This was the experience of contemporary choir group Rock Choir, which switched from taking members’ subscriptions via monthly card payments to using Direct Debit via GoCardless.

This had the dual advantages of speeding up the payment process – choristers could set up their Direct Debit payments on Rock Choir’s website in minutes – as well as almost eradicating the problem of failed payments when cards expired. Failure rates dropped from five per cent to one per cent as soon as Direct Debit was introduced.

David Lusher, co-founder of Rock Choir, commented: “Rather than chasing people to update their details, we can now retry failed payments at the click of a button”.

Reliable cash flow fuelling growth

Similarly, Edinburgh-based digital agency Lyles Sutherland opted to use FreeAgent’s accounting package along with Direct Debit via GoCardless to ensure all its invoices got paid on time. The business is growing very quickly, so hours spent chasing payment were precious moments away from the more pressing day-to-day demands of the company. The owners also wanted to be confident that sufficient funds were flowing into the business to finance its fast growth.

Fraser Sutherland, co-founder of the agency, explained: “It’s been fantastic knowing that the money is coming in every month without us having to chase it. It’s really streamlined the business. The time-saving has meant that staff are available to deal with customer enquiries rather than chasing up payments.”

Businesses being paid on time really matters. Not only does it keep vital cash flowing through an enterprise, but company profits also improve, and the probability of business failure is vastly reduced. About 50,000 firms a year would remain open if all their bills were paid on time, the FSB estimates.

Efficient payment processing paired with the latest accounting technology is a formula that can save SMEs both time and money. Perhaps one day it may even make late payments a thing of the past.

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