How do direct debits work?

When you’re running a business, it can be hard getting your customers to pay on time. Especially in these tough economic times where almost two-thirds of vulnerable Australians are struggling to pay their bills on time. Offering your customers safe and flexible payment options, like direct debit, can be a great way of helping customers make payments on time. But how do direct debits work? And how can an advanced payment system, like Biz Core, keep your customers happy and your business moving forward?

What is direct debit?

Put simply, direct debit is an authorised automatic transaction that transfers money from a customer’s account to a merchant’s account on an agreed upon date. A direct debit can be a once-off payment or a recurring payment. Typically, payment schedules for recurring direct debits are weekly, fortnightly or monthly.

What is an example of a monthly direct debit?

While direct debit can be used for once-off payments, it’s most often used for recurring payments. Examples of monthly
direct debits include:

• Utility bills such as gas, water, and electricity.
• Service providers such as phone companies or internet service providers
• Membership fees, such as gyms, personal trainers, or sports clubs
• Child care fees
• School fees
• Subscription services
• Charity donations

Whether you’re looking to process once-off payments, recurring payments, or both, Biz Core’s payment system is adaptable to suit whatever your business needs!

Contact us today to find out how we can help your business.

How does direct debit work in Australia?

In Australia, businesses must be approved as a direct debit entry user by a financial institution in order to make or collect direct debits. A business must also obtain a signed direct debit authority form from customers in order to have permission to set up direct debit.

Direct debits are often confused with recurring payments, however they are different. Where a recurring payment involves using a credit or debit card, direct debit is a cardless payment method that transfers funds from one account to another.

It can take up to 3 days for a direct debit to clear in Australia, depending on the customer’s banking institution, whether it is the first direct debit, and the date of the direct debit.

What is required for a direct debit?

What is required for a direct debit will depend on each business and the products and services they provide. However, generally, a direct debit requires:

• For the business to be approved as a direct debit entry user by a financial institution.
• A signed direct debit authority form.
• Customer information, such as their BSB and account number.

What are the pros and cons of direct debit?

Just like with any payment method, there are advantages and disadvantages of direct debit.

Pros of direct debit

Increased cash flow predictability

Direct debit allows your business to better predict when and where income is coming in providing a greater forecast for cash flow.

Saves time and money

Reducing the need to chase late payments and reconcile overdue accounts, saves your business valuable time and money.

Reduction in missed payments

Because direct debit is automatically debited on the agreed upon date, customers don’t have to worry about remembering to make manual payments. This reduces the chances of late or missed payments.

A secure form of payment

As mentioned above, businesses must be an approved direct debit entry user and they must obtain a direct debit authority form. These requirements reduce the risk of fraud for both businesses and customers, making direct debit a more secure payment method.

Cons of direct debit

Reluctant customers

Customers are often reluctant to sign up for direct debit, particularly if they have not established a relationship of trust with a business.

Payments are not instant

Direct debit is not an instant payment method. Instead, it can take 1-3 business days for a payment to clear.

Direct debit dishonours

Direct debit payments only work if the customer has sufficient funds in their bank account, so direct debit dishonours, or failed payments, can still occur.

When should you not use direct debit?

Direct debit can be an effective payment method for both businesses and customers. However it’s not the best solution when processing once-off payments for high value items, or if the funds are needed instantly.

Is direct debit a good thing?

Ultimately, whether direct debit is good or bad will depend on your individual business and its needs. Often the best approach for businesses is to offer a wide range of payment methods such as recurring payments, credit or debit card payment, and direct debit. Offering a variety of payment methods will keep your customers happy and improve on-time payments.

Make it easy for you and your customers with Biz Core

Biz Core makes setting up direct debit for small businesses a breeze with our elite and easy to use direct debit system. Our set up process takes just 3 simple steps:

• Set – Enter the payer details into Biz Core and set the payment schedule. The platform has purpose-built tools to make this quick and painless.
• Sign – Once set, our smart software will automatically email a direct debit authority form to the payer which can be signed online.
• Forget – Biz Core knows when the form is signed and will store it for you. Direct debits will now be automatic from the first scheduled payment date.

Our advanced payment platform is safeguarded using the multilayered Microsoft Azure Cloud Security. With built-in security controls and real-time global cybersecurity intelligence, we can protect both your customers and your business at the same time.