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How to Set Up Direct Debit for Small Business

Waiting on payments from customers can be one of the biggest pain-points for any small business. UK SMEs are currently chasing over £50 billion worth of late payments, while the average London-based business is waiting on seven payments at any given time. However, it’s not all doom and gloom. There’s one simple change you can make to reduce the stresses of getting paid: Direct Debit.

Direct Debit for small business

Just like a personal Direct Debit for monthly bills, a small business Direct Debit set up works in much the same way, ensuring that payment will be made on a set date. Direct Debit removes the need for customers to view, approve, and action any invoices you send, so you don’t need to wait around for clients to authorise payment upon receipt of a new bill – the payment is made automatically.

Direct Debit or standing order?

Standing orders are regular payments set up by the customer. This puts the customer in control of their recurring payments. In contrast, Direct Debit is set up by businesses with the permission of the customer (who is protected by the Direct Debit guarantee). Unlike a standing order, Direct Debit guarantees that you get paid, although it’s worth noting that Direct Debit indemnity means customers maintain the right to cancel any payment and receive a refund.

When to use Direct Debit collection for small businesses

Direct Debit is used for regular and recurring payments, which makes it an excellent choice for a range of businesses, including:

  • Businesses that need to be invoiced regularly – The best Direct Debit for small business makes life easier for both the payor and the payee. If you have clients who need to be billed regularly, Direct Debit not only makes sure you get paid on-time, but it saves your customer from doing any additional admin, which is always appreciated.

  • Businesses offering payment in instalments – If you offer goods or products that customers can purchase in instalments, it’s in your interest to make sure they don’t fall behind on their payments. As a result, Direct Debit is the perfect payment option.

  • Subscription-based businesses – If you’re providing an ongoing subscription service, you may want to insist on Direct Debit to prevent customer churn.

Direct Debit services for small businesses

While it may seem like setting up regular payments from a customer’s bank account to your own is a relatively admin-heavy task, the process is simple:

  1. Acquire a Direct Debit mandate from your customer – Also known as a Direct Debit instruction or DDI, they can be made in paper, online, or over the phone (though this method eliminates any paper trail) and is your permission slip from the customer to take future payments, so long as you give notice of the collection prior to it being carried out.

  2. Submit mandates via Bacs – Your DDI needs to be submitted to the banking system via Bacs, this can take up to 10 working days and you will be notified of its completion.

  3. Start taking payments – As soon as the DDI has been accepted you can start taking payments.

  4. Give notice – You must always give notice before taking payments. If you do not, you risk being removed from the Direct Debit scheme. Notice is usually given 10 working days before payment is taken but one-off payments can be made without notice if the customer requests for the payment to be fulfilled immediately.

Using GoCardless for Direct Debit

Direct Debit services for small business was once limited, but with GoCardless, it’s an excellent option. We make Direct Debit easier by handling the admin and equipping you with everything you need for payment success:

  • We handle the submission of all mandates on your behalf

  • We notify customer when payment is due

  • We help maximise payment success by ensuring you are compliant with the Direct Debit agreement

  • We keep you apprised of failed payments, and payment attempts are made up to three times

  • We integrate seamlessly with integrations like Xero and Sage, so you don’t have to rearrange your workflow to benefit from a Direct Debit facility for small business

  • We automate a job that would otherwise have to be done manually, helping you reduce costs

Need to let your customers know you are using GoCardless for recurrent payments? You can easily send them an email in-app, inviting them to create an easy one-time DDI and ensure easy future payments.

International Direct Debit for small companies

Your customers don’t have to be local for your business to benefit from the convenience of Direct Debit. GoCardless offers international payments – the only payment method designed for the worldwide subscription economy. Direct Debit services for small business can often be limited in their reach, but GoCardless removes the borders from your payments.

  • Collect in your customer’s currency from over 30 countries

  • Settle in your local currency, at the current exchange rate

  • GoCardless takes care of compliance in each market

  • Transparent transaction fee of just 2% + 20p

  • Reduce churn rates

We can help

Direct Debit is an excellent way to handle payments from small businesses and SMEs. Find out how GoCardless can help you with ad hoc payments or recurring payments.

GoCardless is used by over 60,000 businesses around the world. Learn more about how you can improve payment processing at your business today.

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