Since its inception more than 50 years ago, direct debit has evolved from a complex, admin-heavy payment collection system to one of the simplest, easy-to-use payment solutions for regular bills.
Despite being one of the most preferred payment options in the UK and Europe, small and medium businesses often shy away from adopting this payment system. Many consider it a complex payment solution fit for the big chains.
And this can’t be further from the truth.
In this post, we hope to dispel some of the common myths surrounding this popular payment collection method.
Myth 1: Direct debit is out of reach for small childcare businesses
For any business that plans to collect their payments via direct debit, there are typically two options:
Banks have been the traditional providers or the sole access route to direct debit, until a few years ago. They are preferred for the low transaction cost they offer per payment, which further decreases with volume.
However, despite being available to businesses of all sizes, direct debit via banks is considered to be better suited for big businesses with high transaction volumes. The reason? You will need to meet a set of revenue criteria, put down a bond to cover risks and be prepared to invest in software as well as extra resources for set-up and ongoing management.
Specialist Direct Debit Providers
Direct debit via specialist third party providers is a more recent solution which has extended the accessibility of direct debit to businesses of all sizes. These specialist providers offer direct debit collection as an off-the-shelf service.
They act as intermediary organisations and manage the direct debit process with the bank, on your behalf. The services are generally subscription-based with no bonds or revenue criteria to meet.
All you need to do is set up an account through the provider’s website, add and invite customers and set up payments. Your customers will be notified before a payment is collected, and the funds will be automatically deducted from their account on the designated date.
And the best part?
There’s no need to invest in software or employ additional resources for set-up or ongoing management. Furthermore, specialist operators like Cheqdin offer integrated childcare payment solutions that allow you to create invoices, collect and track direct debit payments and reconcile them automatically.
Myth 2: Direct debit = Extra administrative load
When direct debit was first conceived by Unilever in the 1960s to collect payments from thousands of ice-cream retailers in the UK, it was far from the simplified version that is available to businesses today.
Over the years, the complex system evolved with changing technology, bringing in intelligent workflows to simplify the entire payment collection process for its end users.
Cheqdin, for example, allows you to automate most of the steps of payment collection. The automated system lets you bring down the staff hours required for all administrative tasks starting from invoicing to payment reconciliation.
Besides reducing paperwork, automating these invoicing and accounting steps also reduces the risk of human error during data entry, further bringing down the time spent on reporting and rectifying mistakes.
Myth 3: Direct debit works for recurring payments alone
One of the biggest myths surrounding direct debit is, it lets you collect recurring payments alone.
All direct debit solutions give you the flexibility to collect recurring as well as variable payments, without having to seek your customer’s consent each time.
The initial mandate (direct debit form) signed by the customer authorises you to collect fixed, variable or ad-hoc payments, provided you inform them in advance about the amount that will be deducted and the date it will be deducted on.
Specialist childcare direct debit providers like Cheqdin also allow childcare providers to accommodate voucher payments or other payment options preferred by your customers.
For instance, a 'pay now' feature on Cheqdin's invoices offer your direct debit customers the flexibility to amend the chargeable amount and pay the remaining using alternate payment methods like childcare vouchers. If your customer does not take any action before the due date on the invoice, the full invoice amount will be deducted from their account on the specified date.
Myth 4: Direct debit is expensive
With the competitive environment created by direct debit innovators, the transaction charges for direct debit is the lowest (1-1.5%) compared to other online payment options such as card payments, which costs between (1.5-3.5%) per transaction.
Myth 5: It's difficult to get customers to switch to direct debit
A recent report published on the UK Payment Markets reveals nine in ten UK customers pay some or all of their regular bills using direct debit. And this is not just the case in the UK, shows another survey by Gocardless.
According to the report, nearly 29-37% of customers surveyed in the UK, France, Spain and Sweden were found to prefer direct debit for subscription payments.
However, for customers who are sceptical about the security of online payments, the Direct Debit Guarantee provides complete protection against fraudulent payments. The guarantee allows customers to cancel a direct debit mandate at any time and provides a fast and fuss-free system to receive a quick refund on any payments taken in error.
Interested in knowing how Cheqdin’s direct debit can help you track, collect and reconcile payments faster? Find out more.
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