How to Set Up Direct Debit for Small Business

Direct Debit for small business in a nutshell:

You know how sometimes it takes a long time for businesses to get paid by their customers?

Well, Direct Debit can help with that. Direct Debit is like when you set up automatic payments for your utility bills, Netflix, or Amazon Prime every month. It's a way for businesses to get paid automatically on a specific date without needing customers to authorise each payment. It's great for businesses that send bills regularly, offer payment plans, or have subscriptions.

Before, it was hard for small businesses to use Direct Debit, but now there are companies like GoCardless that make it easy. We handle all the paperwork and notifications, so you don't have to worry about it. We even work with lots of different software to make it even easier for businesses.

Direct Debit has a lot of benefits for both businesses and customers. It makes sure businesses get paid on time, helps with cash flow, saves time, and makes things more convenient for everyone. GoCardless even lets businesses collect payments in different countries and currencies.

Direct Debit can help small businesses get paid faster and easier. It’s quick and easy to set up with GoCardless, and businesses can get paid on time and not have to do manual paperwork.

Waiting on customer payments can be one of the biggest pain points for any small business. Three in five UK businesses are owed money from late payments, fuelling stress and cash flow problems. Small businesses in south-east and east of England, and Northern Ireland are more likely to experience late payments.

However, it’s not all doom and gloom. You can make one simple change to eliminate the stresses of getting paid late: switch your payment collection method to Direct Debit.

Direct Debit for small business

Like a personal Direct Debit for monthly bills, a small business Direct Debit works 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.

Despite the obvious benefits of offering Direct Debit as a payment method, it has traditionally been difficult for small businesses to access and offer to customers.

Why was it so difficult for so long? There are numerous requirements for setting up Direct Debit via banks and bureaus that most small businesses will find arduous. Once approved, setting up Direct Debit as a payment option with these type of providers can be a complicated task.

However, there are now several Direct Debit providers offering services for small businesses that make set up and management quick and easy.

GoCardless offers small businesses a quick and easy way to set up Direct Debit and offer it to customers in minutes. There are no setup or management fees and no mandatory commitment periods. Try GoCardless today.

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.

You can learn more about the differences between standing orders and Direct Debit here.

When to use Direct Debit collection for small businesses

Direct Debit is used for regular and recurring payments, making it an excellent choice for many businesses.

Businesses that need to be invoiced regularly

The best Direct Debit for small business makes life easier for both the payer and the payee. If you have clients who need to be billed regularly, Direct Debit not only ensures you get paid on time but also 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 ensure 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, Direct Debit is a highly suitable payment method to prevent customer churn.

In certain locations and industries, it's important to understand customer payment preferences, GoCardless conducted a study here to identify trends.

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 on 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 before 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. You risk being removed from the Direct Debit scheme if you do not. Notice is usually given ten working days before payment is taken, but one-off payments can be made without notice if the customer requests that the payment 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 customers when payment is due

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

• We keep you informed of any failed payments and payment collection attempts are made up to three times

• We integrate seamlessly with over 350 software partners 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 authorise a one-time Direct Debit mandate 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 real exchange rate

• GoCardless takes care of compliance in each market

• Transparent transaction fee - see pricing here

• Reduce churn rates

Case study: from cards payments to Direct Debit

Big Blu, a satellite internet provider, used to collect Direct Debit via their bank and also accept card payments via Continuous Payment Authority (CPA). Their payment collection methods were costing them too much time and money, dealing with a high level of manual payment admin and chasing failed card payments. Switching to GoCardless to automate Direct Debit collection and phase out cards with their high failure rate has resulted in a time saving of two hours a day and achieved a 97% - 98% success rate collecting payments across all territories.

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We can help

Setting up Direct Debit is effortless and efficient with GoCardless. By automating the payment collection process, GoCardless drastically cuts down the administrative responsibilities of managing and tracking invoices for your team.

GoCardless makes it quick and easy to get started, and with no contracts or long-term commitment required, there’s no risk. You can set up instant, one-off, or recurring payments in the merchant dashboard in just a few clicks, and GoCardless automatically creates and sends all the necessary forms, doing all the heavy lifting for you. You can also connect to GoCardless via over 350 partner apps, such as Xero and Quickbooks.

Discover how GoCardless can automate payment collection, reducing late and failed payments and the level of manual finance admin, making it easier for you to concentrate on what matters most - your business growth.