Payment collection and accounting take up a major share of the administrative workload of most businesses. Add to it late-payments and the staggered payment pattern that follows, many childcare providers end up spending up to thirty hours a week on payment administration alone.
When traditional payment collection methods like cash or cheques will have you scuttling to the bank to remit the funds, bank transfers will have you checking your payment notifications and updating the transactions manually.
This is where automated payment collection methods like direct debit, card payments and standing orders can make a difference. Automated payment systems allow you to collect payments from your customers' accounts on pre-set dates, without you or your customers actioning the transaction each time.
These automated systems allow you to put an end to late payments, reduce payment admin and make the entire payment collection process faster and easier.
In this post, we compare the different automated payment collection methods and discuss their pros and cons to help you choose the right one for your centre:
Standing Order
A standing order is a payment instruction from your customer to their bank to pay you a fixed amount at regular intervals. This is ideal if you collect your fees on a regular weekly/monthly/termly basis and the amount you charge remains unchanged.
Pros:
- Brings down late payments as the funds will be transferred to your account automatically on the set date
- No transaction fees for you or your customer
- Payments can reach your account on the same day
- Low payment failure rates of <1%
Cons:
- You will need to depend on your customer to create the initial set up with their bank
- Not suitable for collecting variable payments as you cannot change the amount, date or frequency of payments. You would need the customer’s authorisation each time to make changes.
- No payment notifications when the funds reach your account or if it’s late
- Cannot be used for more than 25 customers
- No customer protection once payments are made
Direct Debit
Direct debit is a bank-to-bank service that allows you to collect payments from your customer’s account whenever they are due. If you use an invoice-liked direct debit system like Cheqdin, funds will be extracted from your customer’s bank account to yours on the date you set on each invoice.
Pros:
- Needs minimal administration once the initial set-up is complete
- Puts you in control as you can change the amount, date or frequency of payments without turning to your customer to make the changes each time
- You have the option to collect payments for ad hoc sessions immediately. All you need to do is inform the customer by sending them an invoice before collecting the payment.
- Can be availed as part of integrated childcare software solutions. For example, Cheqdin’s direct debit comes as part of a complete nursery management package including invoicing, billing, attendance tracking, bookings management and parent communication
- Allows you to reconcile payments automatically
- Secure transactions protected by Direct Debit Guarantee
Cons:
- Requires your customer to fill out and return a direct debit form or mandate to authorise you to collect payments. ( Cheqdin, however, allows you to collect and track your mandates online)
- Funds can take 3-5 days to reach your account
- Albeit small, you will need to pay a transaction charge (1-1.5%)
Card Payments (Continuous Payment Authorities)
Automated card payments is an authorisation given to you by a customer to collect payments from them by debit or credit card. The customer's card details are taken in person, over the phone or set up online. You can automatically collect recurring or one-off payments from the customer until they cancel the agreement.
Pros:
- You are in control. You can change the date of payment, amount and frequency of collection
- Quicker payment processing. The funds will be available in your account within 24-hours. Ideal if you require next-day payments
- Higher levels of customer protection compared to standing orders. Continuous Payment Authorities (CPAs) offer customers a refund when using credit cards. However, there are limitations for payments made using debit cards.
Cons:
- Around 5% chance of payment failures due to cancelled or expired cards or customers reaching spending limits
- Higher cost per transaction of around 3% plus additional admin charges for chasing up customers to update card details
- Higher admin time compared to direct debit due to increased payment failure
Here’s Your Takeaway
If you are looking at an automated payment option with no transaction costs, standing orders are a good option – provided your monthly fees remain the same, and you don’t plan to use the scheme for more than 25 children. You will need to do your reconciliation manually.
If you charge for ad-hoc sessions separately or your invoice amounts vary, direct debit or card payments can be a good choice. You can deduct both recurring and variable payments and maintain the control to change the amount and payment dates.
Card payments offer quicker payment processing within 24-hour, but the transaction rates are higher. Direct debit, on the other hand, could take up to 3-5 days to credit the funds into your account. But the transaction charges are low, and you will be able to track funds and reconcile payments automatically.
Interested in finding out how Cheqdin can help you automate your payment collection? Visit our direct debit page for more information or get in touch with our product expert to get your questions answered.
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