A Beginners Guide to Direct Debit for Small Business Owners

Payment collection can be difficult for small businesses, a vital part of your cash flow, yet so often a time-consuming process, which if not done effectively can have some very serious knock-on effects.

For many, Direct Debit will present itself as a great way of ensuring regular payment collection while saving you valuable time so you can focus on the day-to-day running of your business.

Direct Debit can be a complicated area, however, especially for those who aren’t familiar with how it works. While we’ll all be signed up to direct debits for recurring services and utilities, how you can use them to collect payments for your business is a very different prospect. In this guide we will answer some of our frequently asked questions in direct debit collection – which will get you up to speed much quicker.

What is a Direct Debit?

A Direct Debit is an automated method of payment that, which is the most efficient way for many small and large businesses to collect payments from their customers. Direct Debits allow firms to directly draw payments from the bank accounts of their customers.

How is this different from a Standing Order?

The main difference between a Standing Order and a Direct Debit is who has control of the payment. With a Standing Order, the control lies with a customer who will set up and give the payment instruction. With a Direct Debit, the control lies mostly with the business, after the customer has completed the Direct Debit mandate.

Are there any disadvantages to Direct Debit?

There are a few minor drawbacks of Direct Debit payments. In some extreme circumstances, transactions can be charged back and leave your business somewhat vulnerable to disputes or fraud. Also customers have to be informed in advance of the payment, and the failure to do so can result in chargebacks.

Why would I want to collect my payments by Direct Debit?

Collecting payments via Direct Debit offers a number of key benefits to businesses. Firstly, businesses are able to better control their cash flow with a fixed schedule of payments planned in advance. Also, the reduction of paperwork is dramatic and a large cost saving exercise for businesses. Finally, the danger of late payments is reduced, with the peace of mind that your payments will arrive at a prescheduled time and date.

How long do Direct Debit payments take?

Unlike credit or debit card transactions, Direct Debit payments do not clear instantly. Generally, the process takes about 3 days before the cleared funds are in your business account.

How often can I make collections for my business?

Once you have set up the Direct Debit, and it has been authorised by the customer, you are able to make collections at any time.

What is a Service User Number? (SUN) Why do I need one?

A Service User Number is a unique identifier used by organisations and businesses collecting payments via direct debit. The SUN allows all communications to be stored and recorded where necessary. The SUN is the best and often only method of tracking payments made via direct debit.

What is a Direct Debit Mandate?

A Direct Debit Mandate, sometimes known as a Direct Debit instruction allows businesses or organisations to collect payments from a customer’s bank account. The customer involved is required to sign the mandate from the organisation that they wish to pay.

Many of my customers are in Europe, can I collect direct debit payments from them?

It is possible to collect payments in Europe. This is known as a SEPA (or Single Euro Payments Area) direct debit. In short this is a direct debit that can be taken in any of the 34 SEPA countries and associated territories.

This article was produced by London & Zurich who have further guides available here.

If you wish to know more about how Direct Debits can aid your business then please complete the following form and a representative from London & Zurich will contact you to discuss a no obligation quote.

Date published 2 Dec 2015

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.