How do Direct Debits Work?
Table of contents
When you’re running a business, it can be hard to make sure your customers pay on time. Especially in these tough economic times where over one-third of vulnerable Australians are struggling to pay their bills on time. Offering your customers safe and flexible payment options, like direct debit, can be a great way of helping customers make payments on time. But how do direct debits work? And how can an advanced online payment system, like Biz Core, keep your customers happy and your business moving forward?
What is direct debit?
Put simply, the definition of direct debit is an authorised automatic transaction that transfers money from a customer’s account to a merchant’s account on an agreed upon date. A direct debit can be a once-off payment or a recurring payment. Typically, payment schedules for recurring direct debits are weekly, fortnightly or monthly.
Read more: What is Direct Debit?
What is an example of a monthly direct debit?
While direct debit can be used for once-off payments, it’s most often used for recurring payments. Examples of monthly
direct debits include:
- Utility bills such as gas, water, and electricity.
- Service providers such as phone companies or internet service providers
- Membership fees, such as gyms, personal trainers, or sports clubs
- Child care fees
- School fees
- Subscription services
- Charity donations
Whether you’re looking to process once-off payments, recurring payments, or both, Biz Core’s payment system is adaptable to suit whatever your business needs!
Contact us today to find out how we can help your business.
How does direct debit work in Australia?
In Australia, there are multiple steps for the procedure for a direct debit system to be set up for a customer. Businesses must be approved as a direct debit entry user by a financial institution in order to make or collect direct debits. A business must also obtain a signed direct debit authority form from customers in order to have permission to set up direct debit.
Direct debits are often confused with recurring payments, however they are different. Where a recurring payment involves using a credit or debit card, direct debit is a cardless payment method that transfers funds from one account to another.
It can take up to 3 days for a direct debit to clear in Australia, depending on the customer’s banking institution, whether it is the first direct debit, and the date of the direct debit.
Does direct debit work on weekends?
Any direct debit payment that falls on a weekend (Saturday or Sunday) or public holiday will be taken the next working day.
What is required for a direct debit?
What is required for a direct debit to work will depend on each business and the products and services they provide. However, generally, a direct debit requires:
- For the business to be approved as a direct debit entry user by a financial institution.
- A signed direct debit authority form.
- Customer information, such as their BSB and account number.
What are the pros and cons of direct debit?
Just like with any payment method, there are advantages and disadvantages of direct debit.
Pros of direct debit
Increased cash flow predictability
Direct debit allows your business to better predict when and where income is coming in providing a greater forecast for cash flow.
Saves time and money
Reducing the need to chase late payments and reconcile overdue accounts, saves your business valuable time and money.
No fees
As the payment is direct from one bank account to another. For the majority of the time there are no fees associated with direct debit, unless you have direct debit dishonours.
Reduction in missed payments
Because direct debit is automatically debited on the agreed upon date, customers don’t have to worry about remembering to make manual payments. This reduces the chances of late or missed payments.
A secure form of payment
As mentioned above, businesses must be an approved direct debit entry user and they must obtain a direct debit authority form. These requirements reduce the risk of fraud for both businesses and customers, making direct debit a more secure payment method.
Cons of direct debit
Reluctant customers
Customers are often reluctant to sign up for direct debit, particularly if they have not established a relationship of trust with a business.
Payments are not instant
Direct debit is not an instant payment method. Instead, it can take 1-3 business days for a payment to clear.
Direct debit dishonours
Direct debit payments only work if the customer has sufficient funds in their bank account, so direct debit dishonours, or failed payments, can still occur.
When should you not use direct debit?
Direct debit can be an effective payment method for both businesses and customers. However it’s not the best solution when processing once-off payments for high value items, or if the funds are needed instantly.
Is direct debit a good thing?
Ultimately, whether direct debit is good or bad will depend on your individual business and its needs. Often the best approach for businesses is to offer a wide range of payment methods such as recurring payments, credit or debit card payment, and direct debit. Offering a variety of payment methods will keep your customers happy and improve on-time payments.
Make it easy for you and your customers with Biz Core
Biz Core makes setting up direct debit for small businesses a breeze with our elite and easy to use direct debit system. Our set up process takes just 3 simple steps:
- Set – Enter the payer details into Biz Core and set the payment schedule. The platform has purpose-built tools to make this quick and painless.
- Sign – Once set, our smart software will automatically email a direct debit authority form to the payer which can be signed online.
- Forget – Biz Core knows when the form is signed and will store it for you. Direct debits will now be automatic from the first scheduled payment date.
Our advanced payment platform is safeguarded using the multilayered Microsoft Azure Cloud Security. With built-in security controls and real-time global cybersecurity intelligence, we can protect both your customers and your business at the same time.
People also read:
Direct Debit FAQs
How long does it take for a direct debit to be paid?
In Australia, direct debit payments can take anywhere from 1-3 business days to clear. This timeframe will depend on the customer’s banking institution and the date of the direct debit.
Does direct debit come from a card or an account?
Direct debit is a cardless payment method with payments coming directly from a customer's account to a business’ account.
Who initiates a direct debit payment?
A business will initiate a direct debit payment. However, this will only occur once the business has obtained a signed direct debit authority form from the customer.
Biz Core makes setting up a direct debit easy for both your business and your customer. Contact us today for more information and a free live demo!