A direct debit is an automatic recurring payment from a customer to your business. Most people have at least one set up through their bank account to pay regular costs like phone contracts, finance repayments, memberships, and energy bills.
If used in your business, a direct debit guarantee will be set up between you and your customer. This is basically an instruction between your business and your customer. It includes:
- The customer’s bank details – where the money will be taken from.
- Who or what is receiving the money – your business’ name.
- How often payments will be made – usually the same day each month.
- How much each payment will be – this is usually the same every month but could vary.
- When the final payment will be taken and the agreement will end.
Which organisation oversees direct debit?
Direct debit is part of Pay.UK, the operator and standards body for the UK’s retail payment systems. This organisation basically runs the digital payment network used by banks, building societies, and other payment providers, bringing together:
- The Bacs Payment System
- The Faster Payment System
- The Cheque and Credit Clearing Company
Pay.UK is supervised by the Bank of England and regulated by the Payment Systems Regulator (PSR).
A direct debit guarantee protects your business and your customers
If the direct debit guarantee is incorrect for any reason – too much money is taken from the customer’s account or taken on the wrong date – they’ll be entitled to a full refund.
It works both ways too. If a mistake leads to your business being underpaid or a payment is missed, you’re also entitled to collect the payment. The guarantee outlines the agreement for both parties.
What’s the difference between a direct debit and a standing order?
They seem very similar but standing orders and direct debits function a little bit differently.
Standing orders are set up by an individual to pay an amount to another account regularly. The customer can control the amount, the payee and the frequency – it’s all up to them. This is a common way to split recurring bills and expenses between couples, households, and friends.
Direct debits are set up by a business with a customer, but the customer can’t independently control the amount or frequency. They just need to be informed of it in advance and agree to the guarantee.
Some quick direct debit FAQs
Who is responsible for the direct debit?
You might think it’s your business, but it’s actually the customer’s bank or building society.
Can a guarantee be changed once it’s signed?
Your business needs to write to the customer and give them 10 working days’ notice if any aspect of the direct debit is going to change. If a customer wants to make a change they can get in touch with your business to make other arrangements.
What happens if a customer cancels their direct debit?
A direct debit is controlled by the customer’s bank or building society so it’s often very easy for them to cancel a direct debit using their online banking or by giving their bank a call.
This stops the payment but doesn’t end the agreement with your business. Direct debit has made it clear that it’s purely a method of payment and not part of the agreement a customer has with a business. If the customer has entered into an agreement with you and still receives the product or service, they still need to pay.
How can I get a payment back, or resume an agreement, if a customer cancels their direct debit?
Direct debit third party platforms give you the option to recharge unpaid direct debits and send it back to the customer, usually with very little admin or fuss. Fees might apply.
What’s a Service User Number (SUN) and how can my business get one?
A SUN is a unique six-digit number given to businesses by a direct debit bureau to authorise them to accept direct debits. You can get yours by applying to your bank. To be approved your business needs proof of:
- Good financial standing
- A completed indemnity form
- Competent administrative practices for managing payments
- The financial ability to refund indemnity claims
Does my business need an SUN?
The short answer is no. If you’ve already been turned down, or are concerned your business won’t meet the criteria, a Facilities Managed (FM) solution is the ideal solution. This basically means using a third party to give you the ability to use their SUN and fulfil direct debits for you.
4 reasons why your customers want to pay by direct debit
If your business doesn’t offer direct debit as a method of payment, here are four good reasons why you should consider it from your customers’ perspective.
- Customers don’t have to do anything
Direct debits are automatic and pre-authorised between you and your customer’s bank. This means the funds are taken directly and automatically on a set date every month and they don’t have to physically do anything to pay or approve it. All your customer needs to do is fill in and sign the original guarantee and they’re done.
- It spreads the cost
A direct debit spreads the cost out for a customer, allowing them to pay in instalments for something that might be unaffordable in one go.
- It’s ideal for subscriptions and monthly services
Direct debits are generally set up to take payment monthly. This is ideal for costs that roll over monthly, a repayment over several months, or regular subscriptions.
- Customers are already familiar with it
Lots of us already pay for services by direct debit so it’s a trusted and reliable method of paying in installments. Customers know the payment will be taken on their behalf for the length of the agreement and can feel secure that it’s regulated and reputable. This is especially important for generations that are less comfortable with buy now, pay later services, namely the over 55s.
Why your business should accept direct debits
There are a lot of perks to accepting direct debits from your customers. Here are just a few to think about.
It’s faster and more reliable than an invoice
3 in 5 businesses are owed money from their customers in the form of overdue invoices, according to recent research from Barclays. The survey of 500 businesses demonstrated that late payments can have a serious impact on a small business’ ability to pay staff and suppliers. There’s a personal cost too – cash flow issues put strain on business owners and their families.
Setting up direct debit guarantees with your customers means the payment is taken on a specific date. You’re authorised to take the cash on a specific date, rather than wait for someone else to do it for you. This is a huge win for your business if you’re used to chasing and reminding late payers.
It’s low on admin
As soon as the direct debit guarantee is in place with your customer, there’s not much you need to do. The hard work is now entirely automated by the customer’s bank or building society and received by yours. You don’t need to cross check details and make sure they’re correct or request payments. All the paperwork and legwork associated with some other payment methods is non-existent!
A direct debit is linked to the customer’s bank account, rather than their credit or debit card. Cards are great for a one-off, instant payment, but they expire or are lost and replaced, meaning regular payment through this method isn’t very reliable. If the customer switches to a new bank, their direct debits will be moved over automatically thanks to the Current Account Switch Service.
Direct debit guarantees can always be changed, whether that’s the amount, date taken, or something else. As long as this is communicated with enough notice before the next payment and both you and your customer are in agreement, this is easy to update.
4 ways to accept direct debits in your business without a Service User Number (SUN)
These third-parties are an easy and affordable way to accept direct debits without having to jump through hoops to get a SUN.
Collect subscription payments, invoice payments, and all other direct debits internationally. Every transaction is visible on a smart dashboard so you can keep track of payments, and the Application Programming Interface (API) is easy to install on your website or app.
GoCardless also integrates with a lot of business accounting and payment tools which you might already be using, including Sage, Xero, and Salesforce. From your customers’ perspective, they’ll see a slick and user-friendly page inviting them to set up their payment details.
How much? UK and Eurozone direct debits are charged at 1% + £/€0.20 per transaction. International direct debits are charged at 2% + £0.20 per transaction. This includes currency conversion and the best value exchange rate.
The standard monthly subscription is free, but you can access some customisations for £50-200 a month.
2. London & Zurich
Accept weekly, monthly, and one-off payments with the flexibility to change amounts. London & Zurich is an established third-party direct debit provider which can transfer your cash to you within 2 days.
London & Zurich is a bit more old-school in terms of onboarding than entirely online processes like GoCardless. Their direct debit system is slightly different depending on what your business needs and pricing varies too, so they encourage all potential customers to request a quote and get in touch to talk about what kind of service they can provide.
How much? You need to request a quote to find out how much processing direct debits will cost your business. This will depend on how much your average customer will be paying, how often, and how many customers you have.
As well as a variety of other online and in-person payment methods, Adyen provides a smart direct debit API for online businesses. As well as BACS Direct Debit in the UK, your business will be able to accept ACH (US-based) and SEPA (Europe).
Adyen promises an excellent customer experience, deep insights into your business’ payment data, and fraud detection tools. If you want to accept a variety of different payment methods as well as direct debit, and keep your payments in one place, this could be the one to go with.
How much? €0.10 + £0.50 per transaction.
Bottomline is apparently the UK’s leading provider and has a few direct debit packages, including a simplified one for businesses with no SUN.
You can set up quickly with no minimum volume and give your customers the ability to set up their direct debits online, over the phone, or in-person. Your business will get its money three days after it’s collected from your customers.
How much? Pricing ranges from £0.50 per direct debit to £50 per month + £0.40 per direct debit for businesses processing higher volumes.
Some things to think about before you sign up for direct debit for business
- How much does it cost? As well as per transaction and per month fees, look out for any extra charges covering missed direct debit payments or recharging. These are standard but good to be aware of.
- Is there a contract? There could be a minimum period you have to sign up for. Look for low commitment arrangements if you want the freedom to move around.
- Will your customers have a good experience? Direct debit is supposed to be easy. Check your customers can set it up fast with a seamless user experience. Ideally, they should be able to set up online, in-person, and over the phone if necessary.
- Do you get smart analytics? You should be able to keep track of your payments, which have been processed, which are due, and which have failed (if any!).
- How’s the customer support? If you’re relying on a third party to process your direct debits, you need to be able to trust them when things go wrong. Check they have reliable 24/7 support available and you can troubleshoot any issues fast.