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How to Prevent Late Direct Debit Payments

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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 editedMar 20232 min read

Direct debit payments offer numerous benefits to businesses, including lower payment failure rates in comparison to credit cards. However, no payment method is perfect. Any late payment will take a toll on your cash flow, so it’s worth figuring out how to minimize – or prevent entirely – late direct debit payments.

What are late direct debit payments?

Direct debit payments are sent and received using the Automated Clearing House network. This links banks and financial institutions throughout the United States. When a scheduled payment is rejected, the payment doesn’t go through and becomes late or overdue. ACH returns are similar to bounced checks and occur for many different reasons. One of the most common is insufficient funds in the customer’s bank account. When you go to take payment on the authorized day, the payment fails if there aren’t enough funds. You’ll then need to spend time chasing up on the late payment, which can be damaging to customer relationships.

What are the causes of a missed direct debit payment?

In addition to insufficient funds, there are a few other reasons behind a missed direct debit payment. For example, the payer might have canceled their direct debit instruction or mandate. They might have disputed the amount or due date listed on your invoice, or never signed the direct debit instruction in the first place.

Many customers move away or switch accounts without bothering to update their account details. This can be a problem with recurring or subscription payments. When the business goes to take the next installment, the payment fails due to an invalid account number.

How to collect Direct Debit payments with GoCardless

1.

Create your free GoCardless account, access your user-friendly payments dashboard & connect your accounting software (if you use one).

2.

Easily set up & schedule Direct Debit payments via payment pages on your website checkout or secure payment links.

3.

From now on you'll get paid on time, every time, as GoCardless automatically collects payment on the scheduled date. Simple.

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How do late payments impact your business?

Failed and missing payments unfortunately take a strong toll on your bottom line. They can slow down your cash flow. When you don’t receive invoice payments on time, this impacts your own ability to pay the bills or invest in future growth. Furthermore, late payments can have an adverse effect on your customer relationships. You’ll need to follow up on missing payments with letters and phone calls to your clients, which can be awkward and time-consuming.

How to prevent late direct debit payments

The first order of business for late payment prevention is to try to run the payment a second time. The customer might have just deposited more money into their account which needs time to clear. For this tactic to succeed, it’s important to try the payment again at the most optimal time. GoCardless offers a Success+ intelligent retries solution that uses AI to recover the failed payment at the best possible time. This successfully recovers up to 70% of failed payments.

Chasing up on missing or late direct debit payments takes up useful time, at high cost to your business. It’s best to prevent these late payments from happening in the first place. With that in mind, try these tips:

Perform a credit check on new clients before providing any goods or services.
Be clear with your payment terms. These should be outlined at the top of your invoice. If you will charge late payment fees, make these crystal clear as well.
Offer a variety of payment methods in addition to direct debit. You want to make it as easy as possible for customers to make a payment.
Set up automatic billing and invoicing. With an automated billing system, you’ll be sure to issue invoices as soon as possible. Automated systems also scan your invoice for errors that could cause delays.
Automate your payment reminders. Send a reminder about upcoming payments as well as messages when you plan to retry the payment a second time.

GoCardless helps pull ACH direct debit payments on the day they’re due. Prevent those awkward conversations with customers so you can focus on providing excellent service instead. We can help reduce debtor days and improve cash flow, all from a streamlined platform that integrates with over 300 partners for full visibility over payments.

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.