Direct Debit for Small Businesses

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1 Direct Debit for Small Businesses 1

2 CONTENTS Introduction 3 What is Direct Debit? 4 How to Accept Direct Debit Payments 12 Paper vs. Paperless Collection 15 Direct Debit Mandates 19 Direct Debit Service User Numbers Direct Debit vs. Standing Orders Direct Debit Bureaus Payment Gateways Recurring Payments Rules of the Direct Debit Scheme SEPA Direct Debits Direct Debit for Landlords EBOOK INTRODUCTION At London & Zurich, our expert business payment consultants are often asked to explain the various aspects of Direct Debit and how it can be used to streamline payment processing for small businesses. We ve written many guides on this subject and thought it was high time we pulled all of this information and expert insight into one handy ebook. So here it is. We ve covered everything from the basics of Direct Debit and getting started to more advanced applications, but if there are any questions we haven t answered, please get in touch. We d love to hear from you! Direct Debit for Charities & Not-for-Profits 57 Direct Debit for Accountants 61 info@landz.co.uk +44 (0) (0) London & Zurich Ltd Unit 5, The Courtyard 707 Warwick Road Solihull, West Midlands B91 3DA 3

3 Receive fixed subscription or membership payments What is Direct Debit? Read this on the L&Z website The low costs associated with the Direct Debit system make it extremely well suited to businesses that collect weekly or monthly fixed payments for subscriptions and memberships. Invoice customers based on usage Direct Debit is perfect for companies that send regular and variable bills to customers depending on their usage. Once the Direct Debit has been set up, utility bills, mobile phone bills and council tax payments can be made quickly and easily, removing the worries associated with late payments or accounts in arrears. A BEGINNER S GUIDE Direct Debit is the most efficient way for many small and large businesses to collect payments from their customers. Once set up and authorised by the customer, the Direct Debit system allows firms to draw payments directly from the bank accounts of their customers. The result is that your business is in full control of how much money you collect, and when. Currently in the UK, approximately 60,000 organisations of every size use Direct Debit to collect a broad range of payments from their customers. This can include everything from membership subscriptions and charitable donations, to utility bills or regular business-to-business (B2B) payments. In 2015 alone, 6 billion transactions took place using the Direct Debit system, with a total transaction value of 4.6 trillion. A VERSATILE METHOD OF RECEIVING PAYMENTS One of the major benefits of the Direct Debit system is just how widely it can be used. Direct Debit can improve the payment systems of a broad range of businesses: Offer customers flexible payment terms Businesses with ongoing customer accounts can use the Direct Debit system to offer a flexible payment system, which allows customers to pay in instalments or clear their account with one simple payment. Receive one-off payments Direct Debit is a convenient, affordable and safe method of collecting one-off payments. The customer protection provided by the Direct Debit Guarantee makes it the safest payment system in the UK. WHAT ARE THE ADVANTAGES OF DIRECT DEBIT PAYMENTS FOR BUSINESSES? There are a number of advantages associated with collecting Direct Debit payments for businesses. This includes: 1. Control Late payments are the scourge of the UK economy, with 85 percent of small and medium-sized businesses being forced to wait beyond their invoice terms for money that is rightfully theirs. What is Direct Debit? 4 What is Direct Debit? 5

4 Late payments are one of the primary causes of corporate insolvencies. The impact on cash flow can be devastating, particularly for smaller businesses. There is also the additional expense and time associated with chasing late payers. By introducing a Direct Debit payment system, businesses can regain control of their payments and manage their cash flow more effectively. 2. Automation If you are dealing with variable payment amounts, Direct Debit allows you to take payments directly from a customer s account without any action on their behalf. Alternatively, if you are collecting regular fixed payments, once the Direct Debit has been set up the whole system will handle itself. 3. Cost Direct Debit is not only the safest way for a customer to make a payment; it is also a very cost effective method of collecting the money you are owed. At London & Zurich, we charge a flat rate fee with no hidden charges. 4. Flexibility While standing orders offer a fixed sum payment option, Direct Debits give businesses the flexibility and freedom to collect payments of variable amounts as and when they arise, without having to seek authorisation from the customer. This allows you to increase prices or charge variable amounts relating to usage without any additional expense or administrative work. HOW DOES THE BACS SYSTEM OPERATE? The benefits associated with the BACS payment system include: Availability Anyone with a UK bank account can pay by BACS. This includes UK businesses. Retention There are no card expiry dates associated with the BACS system, so there s no need to collect new payment details when a debit or credit card expires. Low cost BACS payments are made directly between the banks so you can avoid the UK s expensive credit and debit card networks. The one drawback of the BACS system is that the payments will not be cleared and in your account instantly, which could make them unsuitable for a small proportion of UK businesses. HOW LONG DO DIRECT DEBIT PAYMENTS TAKE? Unlike credit or debit card transactions, Direct Debit payments do not clear instantly. It will generally take at least three days before the cleared funds are in your business account. This may make Direct Debit payments unsuitable for product purchases which require immediate dispatch. Once the payment demand has been submitted to the bank, the payment will then be processed using the three-day BACS cycle. If the Direct Debit has already been set up and authorised, payment will be collected two working days after the submission has been made. In almost all cases, the payment is confirmed three days after the submission. If the Direct Debit is yet to be created, payment will be collected five days after the submission has been made. In almost all cases, payment will be confirmed three working days after the submission. BACS, formerly known as the Bankers Automated Clearing System, is the electronic system used for processing certain financial transactions in the UK. Direct Debits are direct deposits made using this system. What is Direct Debit? 6 What is Direct Debit? 7

5 When a fixed payment schedule has been set up and the customer is aware of the date each payment will be made and the amount to be collected. For example, if council tax payments are prearranged so that 60 is taken on the 15th of every month. Other potential drawbacks include: Disputed transactions can be charged back The Direct Debit Guarantee entitles customers to a full and immediate refund, which could leave your business vulnerable to disputes or fraud. Direct Debit is not only the safest way for a customer to make a payment; it is also a very cost effective method of collecting the money you are owed. They re not well suited to high-value goods Fraudsters may take advantage of the protections provided by the Direct Debit Guarantee to charge back the payments for high-value items You must inform customers of changes You must inform customers, at least ten days prior to collection, if the amount, frequency or date of the payment is changing; failure to do so may result in chargeback disputes. WHAT ARE THE DRAWBACKS OF DIRECT DEBIT PAYMENTS? While there a wide range of benefits associated with the Direct Debit system, there are also some instances where it will not represent the best option for your business. Advance notice In the majority of cases, you will have to notify the customer before you submit a payment for collection by Direct Debit. The typical notice required is ten days; however, this can be reduced by way of an agreement with the customer and your bank. There are two exceptions when advance notice is not required: Instances when a customer authorises a payment to be taken immediately. Authorisation of this kind can only be given for one payment at a time. HOW DO YOU COLLECT DIRECT DEBIT PAYMENTS? Once the Direct Debit has been set up and authorised by the customer, you will be able to collect payments from the customer at any time, providing you follow this simple three-point Direct Debit payment process. Step 1: As mentioned above, all customers must be given advance notice of the payment date and the amount that s due to be collected, unless you have an express agreement with the customer and your bank. Step 2: Once the advance notice period is over you can charge the customer by simply submitting a payment request to your bank via the BACS system. The payment will then clear in 3-5 days. What is Direct Debit? 8 What is Direct Debit? 9

6 Step 3: If there are any problems with the payment being processed, you will receive a message notifying you of the failure. You should then speak to the customer to resolve the issue before resubmitting the payment for collection. HOW DOES THE LONDON & ZURICH DIRECT DEBIT SYSTEM WORK? The London & Zurich Direct Debit payment system is designed to make the whole process quick, simple and seamless, allowing you to spend less time worrying about your payments and more time focusing on growing your business. To use our paperless, web-based Direct Debit system, simply provide us with the customer s payment details along with the date of the payment and the amount you would like us to collect. We then submit the payment request to the BACS system and debit the customer s account on the requested date. The funds are then collected into our secure account, before being paid into your nominated account four working days later. SET UP ANY KIND OF COLLECTION Our intuitive online system makes it easy to set up any type of payment and manage a wide range of payment profiles. We have experience and expertise in a wide range of industry sectors, working with businesses with handfuls of clients to those with thousands of regular payments to process. This allows us to tailor our services to meet the specific needs of your business, whether you re a utilities company collecting variable amounts from your customers, or a fixed fee subscription service. If a customer cancels their Direct Debit or a payment collection fails, we will inform you instantly, providing you with the information you need to make timely cash flow decisions. As well as benefiting from a flexible, low cost payment system, you can also rest assured that your customers are using a safe, secure payment system, which is backed by the Direct Debit Guarantee. Our system allows you to see the outcome of every transaction and provides you with further details about the transactions completed and those that failed. This helps you to manage any credit control issues that arise promptly. What is Direct Debit? 10 What is Direct Debit? 11

7 How to Accept Direct Debit Payments Read this on the L&Z website The only exception to Advance Notice occurs if a customer clearly states that they would like their payment completed immediately, effectively waiving the need for Advance Notice. Any confirmation given, whether in writing or electronically, needs to be made as clear as possible. SUBMISSION OF PAYMENT REQUESTS Set Up The bank will receive payment requests submitted through BACS (Bankers Automated Clearing Services) secure, approved server. Each request is then routed to your sponsor bank and your customer s bank. YOUR GUIDE TO TAKING DIRECT DEBIT PAYMENTS So, you ve decided Direct Debit is right for you? Good choice, but now you need to know how it all works. Our guide will walk you through the entire process, from the initial notification of payment to submission of payment requests and charge back of payments (known as indemnity claims). Cost Per Payment Both your customers and your banks accounts are debited on the day the payment is due, followed by the two banks settling up between themselves, thus completing the transaction. NOTIFICATION OF PAYMENT The first thing you need to ensure before any payments can be taken is that your customers have received Advance Notice of the payment. In simple terms, this means that the customer in question is informed of each payment before it leaves their account. Normally, an invoice is used as the main source of Advance Notification. If you are taking payments, which have a fixed amount, you will only require a single payment notification with details of the frequency and payments to be made. Any variation, however, will require Advance Notice for each individual payment. If you are taking payments, which have a fixed amount, you will only require a single payment notification. How to Accept Direct Debit Payments 12 How to Accept Direct Debit Payments 13

8 AFTER SUBMISSION OF PAYMENTS? It can take several days to know whether a payment has been successful or not. If the payment does succeed, the process is simple and your account will be credited. CHARGING BACK PAYMENTS Paper vs. Paperless Collections Read this on the L&Z website The account holder may recall a Direct Debit payment for various reasons these are referred to as Indemnity Claims. While rare, customers are allowed to charge back any payments made under the Direct Debit Guarantee at any time. BACS will notify merchants of any chargebacks and the amount refunded to the customer will be reclaimed automatically from the Service User in 14 working days. If a customer cancels their Direct Debit or a payment collection fails, we will inform you, providing you with the information you need to make timely cash decisions. As well as benefiting from a flexible, low-cost solution, you can also rest assured that your customers details are held in a safe, secure payment system, backed by the Direct Debit Guarantee. There are two ways in which customers can set up a Direct Debit via paper or paperless set up. Paperless Direct Debit refers to a Direct Debit that is set up either online or over the phone, whilst a paper Direct Debit is more traditional and uses a paper mandate form. Each option has a number of key benefits that cannot be replicated by the other. SET UP ANY KIND OF COLLECTION Our intuitive online system makes it easy to set up any type of collection and manage a wide range of collection profiles. We have experience and expertise in a wide range of industry sectors. We work with companies of all sizes to meet the specific needs of your business, whether you re a utility company collecting variable amounts from your customers, or a fixed-fee subscription service. HOW IS COST AFFECTED? Cost is always an important consideration when setting up any payment solution and working with paper or paperless Direct Debit both have their own cost implications. Paper Direct Debit, for example involves significant costs in printing, postage and storage. The postage costs are compounded by the delays and waiting times associated with paper Direct Debit, which can cost the business in other ways. How to Accept Direct Debit Payments 14 Paper vs. Paperless Collections 15

9 Paperless Direct Debit is considerably more affordable in terms of the admin costs associated with postage, printing, and simply managing the document. Having said this, there may be other costs associated with using a paperless service depending on your provider. For example, a monthly fee to help you manage the payments. On the whole, paperless Direct Debit is the most cost-effective option and also reduces the time associated with the admin of paper Direct Debit. WHICH IS THE FASTEST OPTION? Paper mandates are generally slow to set up. Customers will physically need to fill out a mandate form, which is a timely process in itself and does open itself up to human error, which can lead to more time spent correcting initial forms. With paperless Direct Debit, there are far fewer manual processes. Customers are able to sign up instantly online and the data is entered directly into your database, thus saving time and reducing the potential for human error. From a process and speed point of view, paperless Direct Debit is clearly the best option. WHICH IS BEST FOR SIGNING UP NEW CUSTOMERS? The question of customer acquisition is not easily answered when it comes to paper Direct Debit. If you meet with your customers in person, then getting a signed form is an extremely simple way to receive payment authorisation. However, if you do not regularly speak to your customers, you are counting on them to download, print, sign and post back a form to you which can be an extremely slow process. Paperless is often the faster and simpler option if you have access to an online device at the point of sale, in order to show customers how to sign up. This avoids the need for any manual processing and can reduce the potential for human error. WHAT IS THE CUSTOMER PREFERENCE? Inevitably, access to a computer or online device plays a large role in customer preference for paper or paperless Direct Debit. As an example, people who are uncomfortable using online payments, or providing any personal details over the phone, will likely prefer a paper mandate. However, for many customers, who are comfortable with the process of making payments online, paperless Direct Debit offers an unrivalled convenience, which on a daily, weekly or monthly basis can make a big difference for businesses. Paperless is a simpler option all round, but it really comes down to the customer and how they prefer to deal with automated payments. HOW IS STORAGE AFFECTED? Storage is a simple issue to address. Paper mandates require an in-house storage solution and someone to manage it. You will also be required to create and maintain an electronic database of the mandate information. On the whole paperless makes more sense in terms of storage and management, although the fact that there is no physical document can make proving authorisation more challenging in case of an indemnity claim. Paper vs. Paperless Collections 16 Paper vs. Paperless Collections 17

10 PAPER VS. PAPERLESS WHICH IS THE BEST OPTION? It is hard to argue that paperless is not easier, faster and cheaper than paper Direct Debits, and for this reason is the better option. People are choosing to use paperless far more regularly, setting up either online or over the phone, but it is important to consider traditional, paperbased Direct Debit set up as an option for customers who might prefer this method. COLLECTED Direct Debit Mandates Read this on the L&Z website LET S GET STARTED Also commonly known as Direct Debit Instructions, it is important to understand the important role Mandates play in the world of Direct Debit. This chapter is designed to help you understand the finer points behind Direct Debit Mandates. WHAT IS A DIRECT DEBIT MANDATE? A Direct Debit Mandate (or Direct Debit Instruction) acts as an authorisation for payments to be collected from a customer in the future. These authorisations are standardised into 3 categories regardless of any further business. Future payments are authorised allowing Service Users to collect any amount at any time from customers. It is strictly required that customers are notified of each payment before it is collected. All payments are covered by the Direct Debit Guarantee, which works to effectively protect all parties from payments made in error. A Direct Debit Mandate allows customers and Service Users to organise a specific schedule of payments, suited to the individual needs of the parties involved. Paper vs. Paperless Collections 18 Direct Debit Mandates 19

11 SETTING UP A DIRECT DEBIT MANDATE In order to set up a Direct Debit Mandate a DDI (or Direct Debit Instruction) form must be completed in one of three ways: Paper: A hand completed paper form is the most traditional way of completing the action. Telephone: Customers can phone their Direct Debit provider and details can be collated in that manner, if customers prefer to have an actual conversation. Online: Using bank-approved payment pages, Service Users can collect customer detail in what is a more private, non-rushed manner. PAPER VS. PAPERLESS Direct Debit Scheme rules strictly dictate the content and layout of these forms. Once they have been completed fully and returned, the details will be submitted to the bank electronically, but it is important to maintain the original form as proof of authorisation. Direct Debit Mandates created without a physical form (i.e. by telephone or online) will need special approval from banks as information presented to clients will need sign off. Also, with no physical copy of the Mandate, it can prove difficult to prove that authorisation has actually been made should a payment ever be the subject of dispute. Regardless of the method chosen, once a Direct Debit Mandate is completed, it will need to be submitted to the banks, informing your customer s bank of the DDI and allowing you to collect payments against it in the future. MANAGING YOUR DIRECT DEBIT MANDATES In terms of managing Direct Debit Mandates in the future, they can be cancelled by a customer through their bank. BACS will send you a message every time there is a change to any of your mandates, for example, if a customer cancels their mandate. Future payments are authorised allowing Service Users to collect any amount at any time from customers. Direct Debit Mandates 20 Direct Debit Mandates 21

12 SUN THROUGH A THIRD PARTY Direct Debit Service User Numbers Read this on the L&Z website WHAT IS A BACS SERVICE USER NUMBER (SUN)? The term Service User Number or SUN refers to the unique identifier that is used by organisations and businesses collecting payment by Direct Debit. This ID is used in all communications with BACS and is stored to record the transaction. A SUN is required for all communications with BACS, creating a record of each individual transaction. The SUN is used by the bank to find the business name that is displayed on the bank statement of the Direct Debit payer. If the payment is charged back by the customer at a later date, the SUN can be used to identify who is liable for the chargeback. WHO HAS OWNERSHIP OF THE SUN? As an example, if you pay your utility bill by a monthly Direct Debit, the SUN belongs to your supplier or a third party agency, which uses its own SUN on behalf of the supplier in question. For businesses looking to receive or pay money electronically, the same choice is available. Namely, to either have your own SUN or to have a third party bureau, such as London & Zurich, manage it for you. Organisations that do not have their own Service User Number can do so through a third party (also known as submitting indirectly). This will be either: Facilities Management A Direct Debit Bureau sets up a SUN for each of its merchants, but will own each of these SUNs itself. The name on each SUN will be Bureau re Client before payments are collected into the bureau s client monies account. Payment Institution A payment institution collects payments on behalf of their client using a single SUN belonging to them. This is then reimbursed and the client is charged a fee. Payment institutions are regulated under the PSD (Payments Services Directive). BENEFITS OF SUNS AND BACS The BACS system is in existence to help businesses and their customers make automated payments easier. Using Direct Debit collection services from London & Zurich can assist your business in a number of key ways: Reduce Administration Using fully managed Direct Debit services can help you to reduce the administration associated with managing finances, allowing you and your staff to worry about more important things. Cash Flow With a full schedule of planned payments, you can manage your cash flow situation and ensure that you have the cash flow you need at all times. Direct Debit Service User Numbers 22 Direct Debit Service User Numbers 23

13 ?? Direct Debit vs. Standing Orders Read this on the L&Z website If a customer cancels their Direct Debit or a payment collection fails, we will inform you instantly. Standing Orders and Direct Debits are often confused because as two automatic payment methods, they do share a number of similarities. SET UP ANY KIND OF COLLECTION Our intuitive online systems makes it easy to set up any type of payment and manage a wide range of payment profiles. We have experience and expertise in a wide range of industry sectors, working with businesses with handfuls of clients to those with thousands of regular payments to process. This allows us to tailor our services to meet the specific needs of your business, whether you re a utility company collecting variable amounts from your customers, or a fixed-fee subscription service. If a customer cancels their Direct Debit or a payment collection fails, we will inform you instantly, providing you with the information you need to make timely cash decisions. As well as benefiting from a flexible, low-cost payment system, you can also rest assured that your customers are using a safe, secure payment system, which is backed by the Direct Debit Guarantee. However, there are also a number of crucial differences between the two systems that can have important implications for your business. Broadly speaking, Standing Orders and Direct Debits appear to do the same thing, i.e. act as a method of allowing you to collect payments from customer accounts on a given date. However, it is not until we dig a little deeper that we can really distinguish the subtle but significant differences. Let s take a closer look... Direct Debit Service User Numbers 24 Direct Debit vs. Standing Orders 25

14 WHAT IS A STANDING ORDER? A standing order is a method of setting up a regular, fixed payment from your bank account. A standing order can be set up for a particular frequency, i.e. the 5th of each month, and for a certain amount of time, such as the next 12 months. The customer is responsible for setting up the standing order and dictating how much will be paid. A standing order can be set up by completing a standing order form, which the customer must then give to their bank. Alternatively, the standing order can be set up in branch, online or over the phone. If a customer does not have the necessary money in their account to make the standing order payment when it arises, they may set up a buffer which allows them to creep into what is effectively an interest-free overdraft to allow the payment to go through. If this buffer is exceeded, it is likely that the customer s bank or building society will not allow the payment to go through. Alternatively, the bank may allow the standing order to go through, but push the customer into an unauthorised overdraft, the result of which can be expensive additional charges. If the customer has insufficient funds in their account to make the Direct Debit payment, they may be offered a buffer zone by their bank with no interest charged. Alternatively, the company in question may make another attempt to collect the money at a later date. WHAT ARE THE DIFFERENCES BETWEEN A STANDING ORDER AND A DIRECT DEBIT? Now we have a basic understanding of the two automated payment types, let s compare the two to help determine which payment collection method is best for your business. Who is responsible for making the payment? Standing Order It is the customer s responsibility to give an instruction to pay your business a fixed sum at a regular interval, whether it s a weekly, monthly or annual payment. Direct Debit WHAT IS A DIRECT DEBIT? A Direct Debit provides customers with a regular way to pay variable payments or fixed monthly fees from their current account. Direct Debits are commonly used to pay utility bills, council tax and gym memberships. To set up a Direct Debit, the customer must fill in a Direct Debit mandate form with the organisation they wish to pay. The money is then collected by the company according to the customer s instructions. If the company wants to change the Direct Debit, either to alter the payment date or the amount due, they must inform the individual in question by giving advance notice of ten days. On the other hand, Direct Debit payments offer far greater flexibility, allowing the business to collect variable amounts, or change the date or the amount of the payment without asking for further authorisation. However, ten days advance notice must be provided. Who has ultimate control of the payment? Standing Order The control very much lies with the customer. Not only do they set up the standing order and determine the size and frequency of the payment, but they can also cancel or change the payment details whenever they see fit. They do not have to notify the recipient when they do so. Direct Debit vs. Standing Orders 26 Direct Debit vs. Standing Orders 27

15 Direct Debit Setting up a Direct Debit requires the authorisation of the customer. Once the mandate has been completed, the merchant has full control over the sum and the date of the payments. This provides the company with the added security of a predetermined level of income. What are the costs? Standing Order A standing order can be collected for free, although depending on your bank, there may be some additional charges. The failure rates of Direct Debit payments are typically less than one percent. Direct Debit Once the Direct Debit has been set up and authorised by the customer, the merchant has full control over the payments. You are free to vary the amount and the frequency of your collections (as long as you give the customer advance notification) and will be notified by the Direct Debit provider whenever a payment fails. You will also be told why the payment has failed, which can help to improve your credit control process. How are standing orders and Direct Debits set up? Standing Order A standing order can be set up entirely independently by the customer with no need for a third-party provider to be involved. Any business collecting payments by standing order is reliant on its customers entirely, and this can put the business at risk of an unavoidable cash flow crisis. Direct Debit Depending on your Direct Debit provider, you should expect to pay a fixed fee to collect a Direct Debit payment or a percentage of the total transaction amount. This can be considerably more cost-effective than the credit and debit card networks, such as MasterCard and Visa. What are the failure rates? Standing Order If a standing order is cancelled or the customer does not have sufficient money to make the payment, you will not receive a notification to inform you of the payment failure. It is down to your payment system to pick up the failure. You ll then need to chase the customer for payment. Direct Debit The failure rates of Direct Debit payments are typically less than one percent. If a payment failure does occur, London & Zurich will inform you of the failure and tell you why this failure occurred. You can then contact the customer and resubmit the payment when you wish to do so. Direct Debit vs. Standing Orders 28 Direct Debit vs. Standing Orders 29

16 How flexible are the payments? Standing Order This method of payment is very inflexible, as any changes made to the timing or the payment amount will require the old standing order to be cancelled and a new one set up. The customer will have to perform this task, which could cost you money if they are unwilling to do so. Direct Debit On the other hand, Direct Debit payments offer far greater flexibility, allowing the business to collect variable amounts, or change the date or the amount of the payment without asking for further authorisation. However, ten days advance notice must be provided. What are the risks of late payment? Standing Order The risks associated with late payments are relatively high with a standing order because many businesses are simply unable to persuade their customers to set up the standing order in time. Once the standing order has been set up, the risk level falls considerably. Direct Debit Late payments are much more unlikely with a Direct Debit because you can change the dates of the payments yourself and collect the money when it falls due. London & Zurich will also inform you when a customer cancels a Direct Debit. How much administration is required? Standing Order There is generally a high level of administration work associated with collecting standing order payments. Not only do you have to check business accounts regularly to see whether payments have been made, but you will also have to manually update your accounts. There are also no notifications if a payment fails. Direct Debit The administration with this kind of payment is minimal. The London & Zurich system will automatically submit the payments on your behalf and update all your accounts so you can see which payments have been made. There are also notifications which inform you of a failed payment. What level of customer protection does each payment type provide? Standing Order There is absolutely no protection for the customer once the payment has been made. However, this can benefit the business due to the reduced level of customer comeback. Direct Debit Direct Debit payments are backed by the Direct Debit Guarantee. This ensures customers receive an immediate refund from their bank if an incorrect payment is made. IS A DIRECT DEBT OR STANDING ORDER BETTER SUITED TO YOUR BUSINESS? Both of these automated payment methods have their place. The appropriateness of each depends on factors such as the size of your business and the type of payment you typically receive. Generally speaking, a standing order is best suited to very small businesses with less than 30 customers. It also helps if the business has a close relationship with its customers, as a degree of trust is required in their ability to maintain the standing order. If you do operate a standing order, you will benefit from a payment system which can be entirely free, and which puts the onus on the customer to do the work. However, it will require a significant amount of work to administer the payments and update your accounts. Direct Debit vs. Standing Orders 30 Direct Debit vs. Standing Orders 31

17 There s also no way of knowing if a payment has failed. Standing orders are best suited to regular, fixed payments like monthly subscriptions or gym memberships. If you collect payments that vary in their frequency and amount, such as credit card or utility bills, the likelihood is that a Direct Debit system is a better fit for your business. A Direct Debit is often a better option for larger businesses with more than 30 customers. Once the payment has been set up and authorised, you will be notified of any collection failures which can significantly reduce administration time and help to tighten up your credit control and payment processes, ultimately improving cash flow. Direct Debit Bureau Direct Debit Bureaus Read this on the L&Z website There is also less emphasis on trust in a Direct Debit system. Once the Direct Debit mandate has been completed, you are responsible for collecting the payment, which can completely remove the cash flow problems associated with late payments. You can also adjust the frequency and the payment amount whenever it s required, as long as you give the customer advance notice. Directs Debits are equally well suited to making fixed, regular payments, but they really come into their own when collecting variable payment amounts on fixed or indeterminate dates. This flexibility is one of Direct Debit s greatest strengths. GETTING STARTED WITH A BUREAU Every year, thousands of businesses sign up to Direct Debit, as it offers them the most cost-effective and efficient approach to collecting payments from customers. One option of handling Direct Debits for your business is through a third party, known as a Direct Debit Bureau. More than half of the businesses and organisations in the United Kingdom using BACS services make their Direct Debit payments through a BACS approved bureau rather than submitting files themselves, directly to BACS. HOW CAN WE HELP? If Direct Debit sounds like the right payment system for your business, take a look at the Direct Debit services available from London & Zurich to see how we can make your payment process more flexible, affordable and easier to manage. For more information, please get in touch. WHAT IS A DIRECT DEBIT BUREAU? A Direct Debit Bureau is a third party that takes charge of handling Direct Debit payments on your behalf. They do this either using your own Service User Number (SUN) or the Bureau s own. Service User Numbers are explained in more detail in this chapter, or you can refer to the previous chapter dedicated to Service User Numbers. There are a number of reasons that a business might choose to use a Direct Debit Bureau, including: Direct Debit vs. Standing Orders 32 Direct Debit Bureaus 33

18 The business only makes a small number of Direct Debit or BACS direct credit transactions each month. The business is unable to fulfil all of the required criteria to be able to make direct submissions themselves to BACS. The business has only recently been established and their payment collection process is not currently sufficient or reliable. The business is an SME with a relatively low turnover. For whatever reason a business chooses to use a Direct Debit Bureau, it ensures that the process for collecting payments is smooth and limits the responsibility of the business owner. Bureaus are an extremely secure method of payment collection. Every single BACS approved bureau is subject to regular inspection and review by BACS to ensure that they meet the standards set by the scheme. USING YOUR OWN SUN VS. A BUREAU S SUN One important aspect of using a Direct Debit Bureau is the Service User Number. Bureau s such as London & Zurich can set up a Service User Number for your payments, naming this facilities management. For businesses wanting their business name to show on their customer s bank statements, this is the preferred option. Businesses may also choose to use a Bureau s SUN. This option allows Bureaus to submit and manage payments on your behalf. For those looking for a swifter option, with less concern over the appearance of a Bureau s name on your customers bank statements, this may be the ideal solution. It also provides businesses with fewer aspects to manage, and essentially, a more workable solution. HOW TO SIGN UP CUSTOMERS When taking payments through a Direct Debit Bureau, signing up new customers is an easy process that can be completed with paper or online forms, or over the phone, if customers prefer. Generally, most Bureaus will use paper forms, but London & Zurich offer an online platform to do so, as well as a phone service. Our intuitive online system makes it easy to set up any type of collection and manage a wide range of collection profiles. Direct Debit Bureaus 34 Direct Debit Bureaus 35

19 WHAT SERVICES DO BUREAUS PROVIDE? Merchants who choose to use a Direct Debit Bureau collect paper and paperless Direct Debit Mandates themselves, but it differs in terms of the next stages, based on the services provided by the bureau. Firstly, rather than submitting payment details directly to BACS, this is done by the bureau. Payment Gateways Read this on the L&Z website Submissions are then handled on your behalf by the bureau, who will provide details of any failures. Merchants receive payments collected through a Direct Debit bureau directly into their bank account. Direct Debit Bureaus, such as London & Zurich, provide an excellent solution in ensuring that your Direct Debit services are smoothly run and your payments are completed with minimal fuss. Do you need a Payment Gateway for your online store? Perhaps you understand the importance of a Payment Gateway, but would like to know more about how they work? If you want to collect credit and debit card payments from your customers, a secure, online Payment Gateway will put you in control. WHAT IS A PAYMENT GATEWAY? A Payment Gateway is the service that authorises credit card and debit card payments for online and offline businesses. The gateway itself is simply a secure online link between the merchant and the customer s bank. Sensitive information, such as credit card numbers, needs to be protected from fraudulent parties, so this information is encrypted to be passed between customer, merchant and payment processor securely. Even if you are taking payments by post, phone or fax, you still need a Payment Gateway. Direct Debit Bureaus 36 Payment Gateways 37

20 HOW DOES A PAYMENT GATEWAY WORK? The gateway carries out a series of tasks when a customer orders a product or service from a merchant. The process works in much the same way as a physical point of sale terminal in a shop or restaurant: A customer makes an order and enters their card details; If the order is made online, these details are encrypted and sent to the merchant s web server; The merchant then forwards the transaction details to their Payment Gateway, which are then sent to the merchant s bank, and onto the card association (e.g. VISA or MasterCard); The card issuing bank then receives the authorisation request and carries out a number of checks before sending a response code to the Payment Gateway; The gateway forwards the response onto the website where it is interpreted and relayed to the merchant and the cardholder this all takes place in about 2-3 seconds! The merchant can fulfil the order and the money from the sale is deposited into their account. WHAT IS A MERCHANT ACCOUNT? Merchant accounts and Payment Gateways are often thought to be one and the same. They re not. To take customer payments online you need a Payment Gateway and a merchant account. The merchant account is the place where the funds are held before they are deposited in your account. The job of the Payment Gateway is simply to approve or decline the transaction. Our card payment platform is Level 1 PCI DSS compliant, which is the highest level of security required. HOSTED VS. NON-HOSTED GATEWAYS A Hosted Payment Gateway means redirecting customers away from your website to a securely hosted page where the payment can be made. The customer then returns to the website where their order will be confirmed. Our card payment platform is Level 1 PCI DSS compliant, which is the highest level of security required. A Non-hosted Payment Gateway allows customers to enter their payment details without having to leave the website they are on. A website will typically have to meet certain technical requirements and have an SSL certificate in place to process payments in this way. Payment Gateways 38 Payment Gateways 39

21 WILL THE PAYMENT GATEWAY PROCESS INTERNATIONAL PAYMENTS? You will need to check whether the Payment Gateway allows international, multi-currency payments. If the gateway does accept international payments, you should also check whether there are any additional fees. Our service can process card payments for all UK acquirers, across all card types, for all worldwide currencies. Recurring Payments Read this on the L&Z website GET IN TOUCH If you re interested in a Payment Gateway solution, or would like to set up a Direct Debit for regular or one-off payments, speak to London & Zurich today. We will talk you through your options and help you understand every aspect of this cost-effective payment option. If you regularly take payments from your customers on a weekly, biweekly or monthly basis, setting up a recurring payment plan will allow you to collect these payments automatically. Whether it s a regular subscription fee for content, charitable donations or membership fees for a club, recurring payments can be an easy way to collect customer payments. However, one should take the time to assess all the pros and cons when choosing between a recurring payment plan and a Direct Debit scheme. Direct Debit is the most recognised and trusted method for businesses of all shapes and sizes, but there might be certain circumstances where recurring payments is the preferred option. Let s take a closer look Payment Gateways 40 Recurring Payments 41

22 HOW EASY IS IT TO SET UP RECURRING PAYMENTS? Very easy. All you need from your customers are their debit or credit card details. With London & Zurich, you ll simply need to answer a few basic questions about your business and we can start collecting your payments and paying them into your account. We can also keep your customers card details on file for instant set up if they return to your service. HOW DOES THE RECURRING PAYMENTS PROCESS WORK? Setting up recurring payments gives your business the flexibility to create as many different subscription plans as you need. This allows you to customise the intervals when your customers are charged. This could be weekly, monthly or even biannually. You can also offer different pricing tiers to meet the individual needs of your customers and your business. WHAT IS THE COST OF RECURRING PAYMENTS? When choosing a recurring payment provider, it s essential you consider the costs carefully. Some providers may try to lure you in by offering low transaction costs, only to hit you elsewhere. HOW CAN RECURRING PAYMENTS MAXIMISE YOUR CONVERSIONS? Accepting on-site payments can play an important part in increasing your conversion rates. Redirecting customers to a different site to make a card payment can detrimentally impact your conversion rate. Not only does this make the payment process longer and slower, but it also raises more questions in the minds of customers about security. By having a payment page embedded on your site, or by taking payments directly on your website, you can increase your conversions by up to 10%. To accept on-site payments you will need an SSL certificate and compliance with certain legal and technical requirements. HOW LONG DOES IT TAKE FOR FUNDS TO CLEAR? This depends on the payment type and the provider. Direct Debit payments typically take slightly longer to clear, so if you want to ship goods immediately upon payment confirmation, credit card payments could provide the shorter turnaround times you need. However, card payments are not protected by the Direct Debit Guarantee, so if a mistake is made, it can be more difficult for your customers to reclaim any payments that have been taken in error. With Direct Debit, your customers will have the peace of mind that they ll receive a full and immediate refund. When comparing the costs of different providers, you should consider the set up costs, the transaction costs and the admin costs. Only when you ve factored in the cost of all three will you be in a position to make a fair comparison. Recurring Payments 42 Recurring Payments 43

23 For example, it can be difficult to cancel a recurring card payment, whereas Direct Debit gives your customers the right to cancel at any time, which can be an important factor when making their purchasing decision. There s a good reason why Direct Debit is the UK s most popular method of collecting regular payments. It offers a level of security and safeguards that recurring card payments do not. Consumer confidence is everything, so it s our belief that Direct Debit should be the preferred option in most instances. Having a payment page embedded on your site, or by taking payments directly on your website, you can increase your conversions by up to 10%. WHAT LEVEL OF SUPPORT SHOULD YOU LOOK FOR? You need a provider who offers some form of or telephone support for assistance when dealing with chargebacks or in the case of disputes. If you re planning to collect payments from outside the UK, you should also look for a provider that operates internationally and can accept payments in different currencies. A WORD OF CAUTION On the face of it, it might seem an easier option, but there are some important things to consider when weighing up the viability of a recurring payment plan. Recurring Payments 44 Recurring Payments 45

24 WHAT ARE THE KEY RULES? Rules of the Direct Debit Scheme Read this on the L&Z website The rules of the Direct Debit scheme cover the entire service and process, from becoming a user to managing paper and paperless Direct Debits. The entire list of rules can be found here, but we will cover many of the key rules that will affect you. When setting up a Direct Debit, a business must adhere to the following: With effect from 1st January 2008, it is mandatory for all new service users that submit DDIs direct to BACS to use AUDDIS. The service user must submit all documentation it intends to use in its Direct Debit operations to its sponsor for prior approval. You ve taken the step to use Direct Debit for your business, but now, you need to understand all of the finer points of the service, including the Scheme Rules for Businesses. This chapter will walk you through the key rules of the scheme and how they affect your business. WHAT IS THE PURPOSE OF DIRECT DEBIT SCHEME RULES? The Direct Debit Scheme Rules govern how businesses actively use the Direct Debit service, from paying salaries to settling invoices from suppliers. When making payments or collections via Direct Debit you will have a relationship with your bank or building society, which sponsors you to use these services. The rules in place will ensure that all parties and organisations involved will be fully compliant with the scheme. If you have any questions or queries regarding the rules, your sponsoring bank or building society will be able to assist, or you can contact BACS themselves. At the point of set up, the sponsor will provide information to the service user on how and where to access its rules. Having set up a Direct Debit, a Direct Debit Instruction will be set up. The Direct Debit Instruction (DDI) is the method by which service users obtain the payer s authority and account details to debit his/her account. The design of the DDI must follow the prescribed format and be agreed by the sponsor. The Direct Debit Guarantee must be issued to the payer with the DDI or the advance notice. Upon completion of the Direct Debit Instruction, the following rules apply. Once the completed DDI has been returned by the payer, the service user must ensure that all relevant information is recorded before lodging it with the payer s bank. Upon receipt, the payer s bank will either accept or reject the DDI. If rejected, the DDI is returned to the service user. Rules of the Direct Debit Scheme 46 Rules of the Direct Debit Scheme 47

25 In the process whereby the service user collects Direct Debits from its payers, two specific rules apply. Service users are responsible for ensuring the payments collected using the scheme can legally be demanded and collected in this way, without contravening consumer protection or other legislation. Direct Debit is the method of collecting payments and the banks are not responsible for any underlying contract between the service user and the payer. BECOMING A DIRECT DEBIT SERVICE USER When an organisation is looking to join the scheme, it will need to contact its bank, who will be able to advise them of the steps involved in becoming a service user. The bank will need to consider any application to sponsor an organisation as a Direct Debit service user. The service user must submit all documentation it intends to use in its Direct Debit operations to its sponsor for prior approval. Consideration for a sponsorship will take into account contractual capacity, financial standing and the quality of its administrative control. A service user must have a UK sterling bank account. Service users looking to use an overseas/non-uk based central processing centre for the administration of Direct Debit Indemnity Claims must provide a UK telephone number for queries relating to the submission of paper indemnity claims. A service user must complete an indemnity with its sponsor. A service user which is an overseas registered company, or which has its principal place of business overseas, must provide legal opinion that the indemnity would be enforceable under the overseas jurisdiction and/or provide proof of adequate assets within the UK jurisdiction. Many other rules exist regarding your set up as a Direct Debit User, and once you are set up, it is time to move onto the Direct Debit Instruction (DDI), which is the method by which service users obtain the payer s authority to debit their account. It is important that the DDI provides all the necessary information to enable collection by Direct Debit and that the payer is provided with a clear understanding that they have given their authority to debit their account. There is a standard format for the DDI that has been designed to make it easy for the payer to complete and to ensure that all the details necessary to set up the DDI are obtained. The design of all DDIs must be approved in writing from the service user s sponsor before the DDIs can be issued by the service user. The reverse of a DDI must not set out information that might be taken to be part of the instruction. Where it is intended that additional information for payers should be printed on the reverse of the DDI, the sponsor s approval in writing must first be obtained. The Direct Debit Instruction MUST contain the following information: The service user s name and address Direct Debit logo Service user s SUN The heading Instruction to your bank or building society to pay by Direct Debit The name and full postal address of the bank or building society where the payer s account is held The name(s) of account holder(s) The payer s branch sort code The payer s bank or building society account number The service user s reference Rules of the Direct Debit Scheme 48 Rules of the Direct Debit Scheme 49

26 Payer s instruction to debit his or her account, including reference to the Direct Debit safeguards under the Direct Debit Guarantee, signature(s) and date. SEPA Direct Debits Read this on the L&Z website WHAT IS A SEPA DIRECT DEBIT? Our intuitive online system makes it easy to set up any type of collection and manage a wide range of collection profiles. These are only a few of the key rules that exist in the set up of Direct Debit Instructions, and all must be followed. If you have any specific questions regarding any rules in the Direct Debit scheme and how these might affect your business, get in touch with the London & Zurich team today. There are rules regarding Advance Notice, Completion and Lodgement of the Direct Debit Instruction, Paperless Direct Debit and a number of other relevant subjects. Essentially, a SEPA Direct Debit is much the same as a typical Direct Debit, but allows merchants to collect Euro-denominated payments from accounts in the 34 SEPA countries. With SEPA Direct Debits now being implemented in all eurozone countries, all Euro-denominated payments must be collected using the SEPA Direct Debit scheme. The scheme also runs in non-eurozone SEPA countries (including the UK) alongside national Direct Debit schemes, thus it is possible to collect Direct Debit payments through both schemes in these countries. Like UK Direct Debit, SEPA Direct Debit is pull-based, so once a customer has authorised you to take the Direct Debits from their account, you re in control of how much is collected and when. Rules of the Direct Debit Scheme 50 SEPA Direct Debits 51

27 Again, like UK Direct Debits, SEPA payments are made bank-to-bank without any input from card networks. Although SEPA does differentiate from UK Direct Debit in other significant points: Businesses and consumers are treated differently (more below). Unlike UK Direct Debit, ALL SEPA transactions are in Euros, regardless of whether the relevant accounts are in Euros. The bank details required for a SEPA transaction vary from those required in a UK Direct Debit transaction, with Service Users requiring a customer s BIC and IBAN rather than their account number and sort code. The chargeback period in a SEPA transaction is far more lenient, with payers able to get a refund for up to 13 months. Several other implementation details of SEPA are different from the UK equivalent. Direct Debit Collection for Landlords Read this on the L&Z website If you re a landlord collecting rental payments, whether for commercial or residential property, few options provide the stability and security of Direct Debit. BUSINESSES AND CONSUMERS SEPA Direct Debit can incorporate two greatly varying schemes, these are: SEPA Core Direct Debit For all payers who are not businesses wishing to complete a Direct Debit transaction. SEPA B2B Direct Debit For businesses wishing to collect Direct Debit payments from other businesses. As a landlord, you ll no doubt be aware of the importance of receiving rental payments on time; after all, the likelihood is you ll have a buy-to-let mortgage to pay. Some landlords have gone as far as paying their tenants to set up a Direct Debit for the peace of mind it brings. Unfortunately, despite it being the most important aspect of any tenancy, landlords have little control over how their tenants pay, or in fact, if they pay at all! IN THE UK The SEPA Direct Debit Scheme only affects Euro-denominated payments, so collections in GBP in the UK are unaffected, but since 31st October 2016, UK businesses collecting Euro-denominated payments were required to migrate to the SEPA Direct Debit Scheme. The same can be said for letting agencies. For many, it s simply a case of waiting each month to see when and if the payment is made. SEPA Direct Debits 52 Direct Debit Collection for Landlords 53

28 If that isn t reason enough, here are three more benefits of setting up a regular Direct Debit collection with London & Zurich to collect your tenants rent LANDLORDS CAN REDUCE LATE PAYMENTS & RENT ARREARS Late payments and non-payments are arguably the biggest problem landlords face. Landlords in the UK are left 900m out of pocket every year due to unpaid rents. 40% of landlords have had an issue with a tenant not paying rent, with research showing that 46% of tenants with arrears had not paid the money back. Tenants who are persistent late payers are a thorn in the side of UK landlords. Not only do landlords have the inconvenience and stress of having to find out why the payment is late this time, but a late payment can also make it difficult for landlords to meet their own financial obligations, such as paying their buy-to-let mortgage. By setting up a Direct Debit, you can take control of the payment of your rent. Once you have authorisation from the tenant, you can collect rental payments on the day they are due, without having to contact the tenant each month. So, you won t have to worry about sending s or making phone calls to find out why the payment is late. This can also benefit the tenant, as once the Direct Debit is in place, they don t need to worry about putting a cheque in the post or setting up a standing order. Landlords in the UK are left 900m out of pocket every year due to unpaid rents. INCREASE THE RENT OR ADD EXTRA CHARGES We re not advocating regular hikes in your tenants rental payments, but there are times, as a responsible landlord, when you might need to increase the rental price or make additional charges for damage to property etc. In the case of a standing order, you would need to cancel the existing standing order and ask the tenant to set up a new one. This is clearly not without risk, as you cannot be sure the tenant will set up the new standing order. With a Direct Debit, you ll have full control over the amount and the timing of the payment from the tenant. This removes any risk and saves the tenant the time it would take to set up a new standing order. Direct Debit Collection for Landlords 54 Direct Debit Collection for Landlords 55

29 REDUCE YOUR ADMINISTRATIVE BURDEN The life of a landlord is busy enough without having to pop to the bank to cash cheques every month or check your bank balance every five minutes to see if the payment has arrived. Then there s the administrative cost of chasing late payers, which is not only time consuming but also frustrating and stressful. Direct Debit for Charities & Not-for-Profits Read this on the L&Z website Once a Direct Debit is set up, your administrative burden is nil. The money will be taken from your tenant s account every month on the same day, so you ll know when it s in your account without having to check. If the tenant chooses to cancel their Direct Debit, you ll be informed right away. With so many organisations competing for the public s pound, it s essential that charities and not-for-profits make themselves as donor friendly as possible. While one-off lump sum donations will certainly be gratefully received by a charity, it is the donors who give a small amount on a regular basis that make it possible for the UK s charities to carry out their excellent work. Regular donations give charities a sustainable, reliable income and allow them to plan for the future. From the perspective of the donor, there are also considerable benefits associated with this approach. Making a smaller donation on a monthly or quarterly basis allows donors to make a contribution they can afford in a way that suits them. Direct Debit Collection for Landlords 56 Direct Debit for Charities & Not-for-Profits 57

30 DIRECT DEBIT VS. STANDING ORDER Standing orders were once used to fulfil this type of regular donation. However, there are a number of problems associated with this method of payment. Firstly, to create a standing order, the donor either has to set it up in branch, or by filling in a form which they post to their bank. Both of these methods require time, and in our increasingly busy lives, this type of task can be forgotten or pushed to the bottom of a to-do list. Once the standing order is set up, there can also be additional administration work and costs to the charity to maintain the donation. THE BENEFITS OF DIRECT DEBIT Direct Debit makes giving easier. Direct Debit accounts for 31% of all UK charity donations. In the last year, 58 million donations were made to UK charities, which were worth 1.1 billion. But what makes Direct Debit so perfectly suited to charity and not-for-profit applications? It s easier to process Direct Debit payments reduce the amount of accounting and payment admin you need to do. The fees are low Fundraising is a considerable cost to charities that they work hard to reduce. Receiving donations from credit cards or debit cards typically costs 2-3% of the transaction plus a flat fee of pence. Direct Debit payments are typically much cheaper. In the last year, 58 million donations were made to UK charities, which were worth 1.1 billion. The process can be automated The whole Direct Debit process can be automated, leaving you free to concentrate on other things. You ll know what has and hasn t been paid and will be informed as soon as a Direct Debit is cancelled. It s easier for donors Potential donors can set up their payments simply by going to your website. There are no forms to post to the bank, no going into the branch and no fundraisers with clipboards! Direct Debit for Charities & Not-for-Profits 58 Direct Debit for Charities & Not-for-Profits 59

31 BRANDED DIRECT DEBIT COLLECTIONS We offer a white labelled Direct Debit collection service, which means payments will appear in your company name on your donors bank statements. Branded collections not only increase donor trust in the transaction and your organisation, but they can also play a part in building that all-important personal connection between the charity and the donor. Direct Debit for Accountants Read this on the L&Z website HOW CAN WE HELP? At London & Zurich, our paperless web-based system allows you to enter your donors details and tell us how often and how much you want to collect; we ll take care of the rest. Direct Debit collections are not only perfectly suited for use by online merchants who take regular payments from their customers, but they can also help to meet the needs of a diverse range of businesses. If you collect regular payments from your clients, online Direct Debit can reduce your administrative burden and ensure you are paid on time. Direct Debit collections are suitable for: Accountants Marketing agencies I.T. support firms Digital consultants And anyone who takes a regular payment for their services Direct Debit for Charities & Not-for-Profits 60 Direct Debit for Accountants 61

32 THE SCOURGE OF LATE PAYMENTS REDUCE TIME-SAPPING PAYMENT ADMIN Late payments are one of the biggest barriers to growth for British businesses. According to the Federation of Small Businesses (FSB), 85% of SMEs are affected by the late payment of invoices, with the overall value of outstanding payments worth an estimated 34.9 billion. Late payments affect a business s ability to regulate its cash flow, and without cash in the business it can be impossible to pay bills, suppliers or even the company s employees. Clearly, the impact late payments can have is extremely serious. HOW CAN DIRECT DEBIT HELP? Without reliable cash flow, accountancy firms and other agencies can struggle to operate effectively. As a result, many are now turning to Direct Debit to give them control over when they are paid. Once you have authorisation from a customer, Direct Debit allows you to collect payments whenever they are due. You can continue to offer the same payment terms as you do currently, but once those 30 days are up, rather than sending those awkward payment reminder s, you can simply collect the payment directly from the customer s account. The result is a substantial decrease in your average debtor days. This can give you more control over your business, help you pay your liabilities and allow you to capitalise on business opportunities when they arise. 85% of SMEs are affected by the late payment of invoices, with the overall value of outstanding payments worth an estimated 34.9 billion. Receiving payments by the traditional method of cheque or bank transfer requires a certain amount of manual work. Not only do you have to cash the cheques or continue to check your bank account to see whether payments have been made, but you also have the frustrating task of chasing late payers. Some accountancy firms and other agencies choose to use card payments instead. This method of payment is plagued by failure rates, with cards expiring and being cancelled. This leads to more unnecessary work chasing payments, and also some awkward conversations with your clients. Direct Debit for Accountants 62 Direct Debit for Accountants 63