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The 3 things you should never use Direct Debit for

Charlotte Robinson
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Last editedNov 20222 min read

Direct Debit: not for instant, high risk or high value transactions

While you can use Direct Debit to collect nearly anything - one-off, ad-hoc and recurring payments (fixed and variable) - there are three things you should never use it for:

  1. Instant payments – Direct Debit payments take 3-5 working days to clear, so historically have not been ideal for e-commerce goods that need to be shipped immediately or for businesses that need to take an instant payment before a recurring agreement kicks in. However, now Direct Debit can be paired with Instant Bank Pay to solve this issue; see below.

  2. One-off payments for high-value goods – In practice, less than 0.2% of Direct Debit payments are charged back. However, we still wouldn’t recommend using Direct Debit to collect payments for high-value goods like cars where you stand to lose a lot from a fraudulent indemnity claim.

  3. High-risk payments – We also wouldn’t recommend using Direct Debit for liquid assets (like currency or loans) or services like gambling, as these are more likely to be charged back.

If you're collecting any of these, you may want to consider using other payment methods like Instant Bank Pay or Faster Payments.

Direct Debit puts you in control while saving you time and money

If you're collecting any other type of payment, it's probably worth taking a closer look at Direct Debit. Around 60,000 organisations are already using it to collect payments, including utility bills, membership subscriptions, charitable donations and B2B invoicing. Here are three great reasons you should join them:

  • Direct Debit puts you in control. Once you’re given authorisation by your customer, you initiate payments – your customer doesn’t need to do anything. This also means that you can vary the payment amount and frequency whenever necessary.

  • Direct Debit can save you admin time. The entire Direct Debit payment process can be automated, reducing admin for both you and your customer: Payments will automatically be taken when they’re due without your customer needing to do anything.

  • Direct Debit is more cost-effective than card payments. Using credit or debit cards costs around 2-3% of the transaction amount + a flat fee of 20-30p. In comparison, Direct Debit typically costs much less - GoCardless charges 1% per transaction, capped at £2.

If you'd like to find out more about whether Direct Debit is for you, you might find our Direct Debit for Beginner's Guide helpful.

Direct Debit timings & instant payments with GoCardless

GoCardless process all Direct Debit payments according to the accepted scheme rules, meaning that payments will reach your account after five working days, or six days if no mandate exists.

Click here to find out more about collecting Direct Debits with GoCardless.

With GoCardless, we do all the heavy lifting taking care of the whole Direct Debit process on your behalf. For businesses that require faster payment times, we offer Instant Bank Pay which can be combined with Direct Debit to offer a comprehensive payment solution - see the case study below for how Instant Bank Pay and Direct Debit combine to improve payment collection.

Case study: combine instant and recurring payments

For many UK SMEs, Direct Debit holds many advantages as a payment collection method:

  • affordable transaction fees, 

  • a high level of automation which eliminates late payments 

  • strong consumer protections providing customers peace of mind

However, one sticking point has often been the three-day payment cycle which has been problematic for certain businesses that need to see funds clear that day or the next day.

Gravity, a trampoline park business, used to offer customers both card payments and Direct Debits. However, card payments meant expensive transaction fees, and Direct Debits took too long to clear the first payment, which meant that customers could use the service and then cancel their mandate before a payment went out.

GoCardless was able to offer a combination of Instant Bank Pay and Direct Debit, this allowed Gravity to take an initial payment instantly and then reliably collect future payments through Direct Debit.

As a result of using Instant Bank Pay, Gravity was able to:

  • prevent subscription cancellations and subsequent revenue loss

  • save 50% on transactions fees

  • reduce customer sign-up time by 55%

  • get 90% of new customers to use the Direct Debit and Instant Bank Pay combination

  • make sign-up easier and quicker for customers

Watch the short video on how Gravity used Direct Debit & Instant Bank Pay:

Learn how you can combine recurring payments with Instant Bank Pay in a fast, simple and convenient way to collect instant and recurring payments.

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Over 70,000 businesses use GoCardless to get paid on time. Learn more about how you can improve payment processing at your business today.

Interested in automating the way you get paid? GoCardless can help
Interested in automating the way you get paid? GoCardless can help

Interested in automating the way you get paid? GoCardless can help

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