What is Direct Debit?
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What is Direct Debit?
Since 2007, Australia has been steadily advancing towards becoming a cashless society, with more and more customers choosing electronic payment methods over cash. That is why it is important to keep your business ahead of the curve by offering customers a variety of payment options, like direct debit. But what is direct debit exactly and is it right for your business? We explain everything you need to know about direct debit for business, breaking down the pros and cons to con sider.
What is a direct debit?
Unlike a debit card or credit card, a direct debit automatically transfers funds straight from a customer’s bank account to a merchant account on an agreed date. Direct debits are often used for regular payments such as:
- Bills (such as electricity, water, gas etc.)
- Loan repayments
- Instalment payments
Direct debit is often used for regularly recurring payments, although it can also be used for one off payments. The schedule is agreed upon by both the customer and the business, and begins once the direct debit request form is completed. Biz Core offers customers flexibility and control with weekly, fortnightly, or monthly payments options.
Is Direct Debit Safe?
Direct debit is one of the safest forms of payment in Australia. In order for your business to make or collect direct debit payments, you must first be approved as a direct debit entry user by a financial institution. You will also need a completed direct debit request form to authorise the direct debit payments. This process reduces the risk of fraudulent payments for both customers and businesses.
Advantages and Disadvantages of Direct Debit
With any payment method, there are advantages and disadvantages. It’s important to be aware of both so you can mitigate the risk to your business as much as possible.
Beyond being a safe method of payment, direct debit offers both businesses and customers many different advantages.
Increased on-time payments
The most common obstacles to getting paid on time include expired debit or credit cards, and customers forgetting to manually pay their invoice or bill. But with direct debit, payments are automatic and come straight out of their bank accounts. This increases the likelihood that your business will be paid on time, and customers don’t have the stress of an interrupted service or late payment fees.
Save time and money
Direct debit saves businesses time and money because you no longer have to chase customers for late payments or manually update customer payment information.
Predictable cash flow
Because direct debit payments are debited at an agreed upon date, businesses are better able to predict their cash flow.
While direct debit offers convenience and flexibility, there are also some risks associated with using this payment method.
Delayed first payments
Generally, a direct debit will clear in one business day. However, if it is the customer’s first time using direct debit with a business, it can take multiple days for the transaction to clear. This will depend on the banking institution the customer is with. Once a customer’s first direct debit has gone through, the following direct debits should clear within the standard business day.
Although direct debit is safe, customers can be hesitant to sign up for this payment method. A customer generally needs to trust a business before they commit to automatic payments and this can be difficult to establish if they are a first-time customer. However, incentives can help mitigate this obstacle.
Although direct debit significantly reduces the occurrence of failed payments, it does not remove it completely. While a direct debit ensures customers don’t have to remember to manually pay their bill or remember to update their card information, they may still not have sufficient funds in their bank account for the direct debit to be successful.
Is Direct Debit Right for Your Business?
As always, choosing payment methods for your business will depend on your individual circumstances. But if you decide direct debit is the right option for you, you should ensure you choose a direct debit payment platform that works hard for your business so you can focus on the growth and success of your business.
The best direct debit system is more than a payment processing platform. As well as accepting payments, the right direct debit system should also feature:
- Built-in security – the best direct debit systems must have security features already in place so your data and your customers data is protected.
- Customer management tools – when you’re growing your business, managing customer data can quickly become a full-time job. But with direct debit systems such as Biz Core, inputting, updating and tracking customer data is simplified and automated.
- Comprehensive reporting – being able to track and compile data so you can see how your business is tracking is important. Having this vital information can show you where you’re succeeding and what areas need improvement.
- Cash flow tracking – tracking your cash flow is important in order to keep your business healthy.
- Extensive payment management – beyond just accepting payments, a great direct debit system will help you collect signatures, send invoices, view past transactions and upcoming scheduled payments, and send automated receipts, reminders and notices.
Looking for a payment processing platform that offers you more? Biz Core is the solution for you. Contact our team today for more information and a live demo!
Biz Core’s Direct Debit Business Solution
At Biz Core, our automated payment system makes the direct debit authorisation process easier than ever for both businesses and their customers. With a user-friendly direct debit processing platform that streamlines the payment process. You can automatically email direct debit request forms to customers that they can sign online. The payment platform knows when the form is signed and stores this securely before commencing automatic payments as scheduled. Biz Core’s direct debit system prioritises safety usingMicrosoft’s multilayered, Azure Cloud security.
Direct Debit FAQs
How is Direct Debit Set Up?
To set up a direct debit, a business first must obtain a signed direct debit authority form from the customer. Biz Core’s direct debit system has made this process simple and hassle-free for both the business and the customer.
The set up takes just 3 quick 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.
Contact our team today to schedule a demo and find out how Biz Core can support your small business.
What is a Direct Debit Dishonour?
A direct debit dishonour occurs when a direct debit fails, usually due to insufficient funds. This typically incurs a dishonour fee and is recorded on the bank statement. The best way to avoid a direct debit dishonour is to ensure there are sufficient funds in the bank account.
What is Direct Debit and Direct Credit?
Direct debit and direct credit are often confused with each other. However, a direct debit is an automatic transaction which withdraws funds from a customer's bank account. A direct credit is an electronic deposit into a bank account.