Jan 16, 2019

Direct Debit vs Recurring Card Payments For Businesses

We have previously looked at why Direct Debit is preferable to recurring card payments for consumers, but are there also benefits for businesses who need to collect regular payments from their customers?



It’s all about cutting churn.

The main advantage is reducing payment churn, or the number of failed payments. The principal issue with taking recurring payment details by credit or debit card is the payment will fail once a card expires. With payment cards having an average 3- 4 year validity, the churn with recurring card payments can be up to 13% (Source: https://www.pymnts.com). With Direct Debit, by comparison, SmartDebit customers typically see churn of 0.1%.

The counter argument to this is that there can be a similar issue when customers change bank or bank accounts, but the new Bacs Current Account Switch Service ensures all payment instructions are transferred and Direct Debit collections are not interrupted. Payments being collected on time and successfully reduces customer churn or turnover, and ultimately ensures optimum cash flow for your business which will help to fuel your stability and future growth. The other advantage of Direct Debit, for both businesses and consumers, is the Direct Debit Guarantee which clearly outlines responsibilities and rights of the payer, and serves to increase confidence, take-up and commitment.


Cutting payment complexity and improving cash flow

Another benefit of Direct Debit is its ease of use. Payment complexity is reduced as once Direct Debit Instructions are set up, your customers will have agreed to pay the approved amount on a set date, unless they or you change it with an advance notice. Account reconciliation is also easier since the reporting returned upon collection of payments highlights errors and non-payments, so you can reconcile by exception only. Having access to an easy to use solution, such as SmartDebit Pulse® portal  means collection files are submitted with a click to Bacs for processing and your reporting is in one dashboard with a range of easy-to-interrogate standard and customisable reports.


Is Direct Debit cheaper to operate than recurring card payments?

Another issue with recurring card payments can be cost. Card payment providers often charge a monthly fee and fees can be as high as 3.4% + 20p per transaction through a full service payment provider, so the net amount businesses receive can be significantly lower compared to via Direct Debit. Direct Debit bureau costs can vary and may also depend on whether you have your own SUN and need a bureau service, or cannot, or do not wish to, obtain a SUN and require a facilities managed service. Either option offers advantages, but a key task in reviewing bureau costs is to check the full pricing and scheme of costs. Only by checking the small print can you ensure there are no extra charges outside the main pricing highlights which drive up the invoices you receive for bureau services.

We have previously looked at business scenarios such as subscriptions where collecting initial payments by card can be beneficial. Every business model is different, so it is worth speaking to a payment service provider to evaluate which payment method is best for your needs. SmartDebit help a range of businesses, from large utilities and global telecoms, to local education and national and regional charities, get paid the correct amounts on-time. Contact us to discuss your payment needs.

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