Mar 13, 2019

Is Direct Debit the best recurring payment method for low payment churn?

With the range of payment methods currently available for recurring transactions such as subscriptions, service fees, memberships, and regular donations, it’s beneficial for any organisation to be sure that they have the right method for their needs. Payment churn relates to the amount of money an organisation is owed versus the amount that it is actually receiving, and it should be a key consideration when deciding which payment method to use.

SmartDebit customers enjoyed an industry-leading low payment churn of 0.39% overall in 2018, with a large number achieving 0.01%. Here we explore why this is important and how it can be achieved.


Is Direct Debit the best recurring payment method for low payment churn?


Why a low payment churn rate is important

Any business collecting recurring payments and which has a higher than average payment churn rate is going to suffer in terms of cashflow. Poor cashflow can have many repercussions, from impacting the ability to pay invoices and fees, to being able to accurately predict growth and plan ahead. Managing the process to rectify the reason for a payment failing and to try and successfully take the payment again, for example with dunning in the case of credit cards or re-presenting Direct Debit collections, requires administrative resource and can take effort away from more value-adding business operations.

A failed payment can also then mean a lost customer, so a consequence of a higher payment churn rate can be higher customer attrition or turnover. Most new customers have an acquisition cost associated, so looking after the ones you have makes economic sense in order to grow efficiently.

Tips to lower your payment churn

Generally, Direct Debit has a lower payment churn compared to other payment methods such as credit cards, so choosing Direct Debit should lower your risk. However, specific features of some Direct Debit schemes can help to reduce payment churn even further.

One such important feature is familiar and timely communications to payers. SmartDebit customers, whether they have their own service user number (SUN) and use our bureau service or don’t have their own SUN and use our facilities managed service, have branded payer sign-up pages on their own website if accepting online Direct Debit Instructions (DDIs) or branded paper DDIs as appropriate. The payer also sees the collecting organisation’s name on their bank statement and not SmartDebit as the bureau, which helps to reduce cancellations which occur when payers see an unfamiliar entity requesting funds from their bank account.

Another key service feature is the organisation’s onboarding process, as well as the ongoing support and account management. Alongside efficient systems for collecting Direct Debits such as online portals and dashboards, it is important that your account is set up correctly and adheres to the Bacs rules. Adhering to the timescales recommended by Bacs for payer notifications in relation to their collections again reduces the risk of cancelled instructions or indemnity claims. Having sufficient training for all personnel involved in managing Direct Debit payments is also hugely beneficial for reducing errors, as well as omnichannel customer support for resolving any issues. Happily, SmartDebit customers enjoy all of these service features as standard.

The graph below shows the payment churn rate for SmartDebit customers over the last four years, showing a forecasted trend line for the next two years should the reduction in churn rate continue.

How Direct Debit compares to credit card for re-attempting failed payments

Should a recurring payment fail there can be an effort to re-try the payment if collecting by credit card or Direct Debit. A recent article by Chargebee showed that an average of 25% of payments were recovered through dunning. By comparison, SmartDebit customers achieved an average 52% success rate when re-presenting Direct Debit payments, so a markedly better success rate compared to credit card.



If you’re looking into Direct Debit as a payment method for your organisation or business, don’t hesitate to contact us to find out how we can help you to reduce payment churn and improve your cashflow.

Related Posts...


Ready to start improving your cash flow?

Get Started