While most of us know that Direct Debit can be used to collect regular, fixed payments like subscriptions or memberships, a lot of people are confused as to whether it can be used for anything else.
The truth is Direct Debit is pretty versatile and the same things that make it great for regular, fixed payments can also make it great for one-off and variable payments too.
Direct Debit for variable payments
With Direct Debit, you control how much you take from your customers and when. Unlike standing orders, Direct Debit allows you to change the amount or frequency of a payment without needing additional authorisation. Once your customer has given you their authorisation, you can take payments of any amount whenever you need to (as long as you give them the required advance notice).
This makes Direct Debit great for those of you who charge customers depending on how much they use or purchase that month, for example:
Telecoms and webhosting companies who charge depending on monthly usage.
Professional services like accountants, lawyers or marketing agencies who invoice clients depending on the billable work completed.
Non-professional services like cleaners charging infrequent customers just for the months that they use your service.
It also means it's great for those of you who sometimes need to ask your customers or members for additional ad-hoc payments, for example:
Sports clubs collecting payments for competition fees or social events.
Scout groups collecting payments for camps or jamborees.
Charities who ask regular donors for additional donations to one-off campaigns.
Finally, it means that Direct Debit is great for organisations who may sometimes need to change the amount they're billing, for example:
SaaS companies who allow customers to upgrade or downgrade subscriptions.
Season ticket providers like train companies who may need to increase their prices from time to time.
Landlords who may need to make yearly rent increases.
Why would you use Direct Debit for variable payments?
Direct Debit offers a simpler, cheaper and more efficient method for collecting customer payments.
It can be automated - Similarly to credit card payments, Direct Debit offers a far more automated approach than cash or cheque. Payments can automatically be taken whenever they’re due.
It can be cheaper than using card networks - Credit card payments cost around 2-3% + a flat fee of 20-30p per transaction. Direct Debit typically costs much less. GoCardless offers several competitive pricing plans - see here for full details.
Failure rates are lower than with credit card payments - Direct Debit uses account details – not card details – which don’t expire. As a result, failure rates are far lower than with credit card payments (less than 1%).
What they're saying about Direct Debit for variable payments
John Hoyland at Chalfont Otters Swimming Club has found that using Direct Debit has made collecting ad-hoc payments for galas or kit much simpler:
“If a swimmer entered a gala they would owe extra fees and these would either need to be collected separately or the whole standing order set-up process would have to happen again. Everything is now much easier. It’s all set up right at the start so swimmers can start straight away and we can easily charge additional amounts whenever we need to.”
Dave Lusher at Rock Choir explains:
“We originally asked members to pay by card, but the failure rates on these approached 5% every month. This was largely due to card expiry & cancellation. Thanks to GoCardless, recurring failure rates have been slashed to around 1%, and rather than chasing people to update their details, we can now retry failed payments at the click of a button."
Direct Debit for one-off payments
While it isn't typically seen as a one-off payment method, Direct Debit can be great for one-off payments as it can be cheaper than card payments. Examples include businesses collecting individual invoices, charities accepting donations, and organisations hosting events.
You should consider using Direct Debit for your one-off payments if:
Like Crowdcube, you need to set up payments but only take the money when a pitch has reached its target.
Like BuyOurHoneymoon, you want to keep costs as low as possible to give customers as much value as possible. Direct Debit is also a great option for charities offering one-off payments as it means more of the donation can go towards the cause.
Like Greater Anglia, you want to offer customers the choice of paying all in one go or in instalments.
Why would you use Direct Debit for one-off payments?
Direct Debit timings may mean that it isn’t suited for all one-off payments. It takes at least 3 working days to collect a payment so is unsuited for e-commerce or where you deliver physical goods the next day.
Direct Debit, however, can be cheaper than card payments. If timings aren’t an issue, if cost is your biggest concern, or if this one-off payment could form part of an on-going relationship, you may want to consider Direct Debit.
You are in control - Like credit card payments, with Direct Debit you are in control of when you are paid so you won’t need to wait for customers to get round to sending you that cheque.
It can be cheaper than using card networks - Credit card payments cost around 2-3% + a flat fee of 20-30p per transaction. Direct Debit can cost much less. GoCardless has several competitive pricing plans - see full details here.
What other payment methods could you use?
Whether you're collecting one-off or variable payments there are a couple of other options for you to choose from:
Invoicing and payment by cash or cheque
Credit card payment
Which is best for you will depend on your business.
Cash and cheque: Only if you have very few customers
While cash and cheque are the traditional options for collecting payments, they involve too much hassle to be used for recurring payments unless you have very few customers. They are more suited to one-off payments but even then it means your customer - not you - is in control of when you're paid.
Even if they do always remember to pay you on time you'll still need to send out invoices, wait for payments to be delivered and then bank and reconcile these payments. And, with 85% of small and medium businesses experiencing late payments in the last two years, it seems that your customers aren't always paying on time.
With late payments comes the inevitable painful and time consuming process of chasing your customers - awkward conversations and hours wasted. Merchants like Grow Wild used to spend over 10 hours a week processing and chasing cash, card and cheque payments from their customers. Now they get to spend that time focusing on growing their business. Just think of all the great things you could be doing if you weren't stuck chasing payments...
Credit card payments: Only if you need next-day payments
Credit card payments can be used for one-off or recurring payments.
A continuous payment authority lets you use your customers' credit card details to set up payments to be automatically collected each month. This means regular payments can be set up and then forgotten about while variable payments can be taken without needing further authorisation.
However, a payment will fail if your customer's card is cancelled or expires (around 5% of the time). Having to update card details creates more work for your customer (and you) and may result in them letting their payments lapse to avoid the hassle.
We would only recommend credit card payments for recurring payments if you require instant payment e.g. if you’re delivering physical goods online the next day, or if your payments provider offers an account updater service.
Card payments can also be used for one-off payments and are particularly great for when you need instant payment e.g. for e-commerce. Card payments are the quickest way to collect one-off payments but they may not be the cheapest. If you don't need payment straight away it may be worth considering whether Direct Debit could save you, and your customers, money.
What about Standing order?
Standing orders can only be used for regular, fixed payments - not for one-off or variable payments. If you'd like to find out more about why check out our guide to standing orders vs Direct Debit.
If you'd like to find out more about how each of these payment methods measures up, check out our guide to recurring payments.