Direct Debit - The Myths and the Truth
February 26, 2020
It is a fact that companies which use Direct Debits to collect the payments they are owed will have greater control over their cash flow than companies that don’t. It doesn’t matter how many (dozens a month) or how few (once a year) payments you collect, with Direct Debit your cash flow is entirely manageable and predictable giving you peace of mind while allowing you to concentrate on growing your business.
Despite the popularity of Direct Debit, however, it continues to be surrounded by myth and misconception. So, being the good people we are, we’ve taken five popular myths about Direct Debit and debunked every one…
- The myth #1
Direct Debit is only suitable for large companies.
For many of us, our first use of Direct Debit was when we set up an automated payment for utility or telephone bills to a large multi-national organisation, which inevitably leads us to think that Direct Debit is the preserve of large companies.
The truth is somewhat different, however. For any business the significance of managing cash flow is of paramount importance and companies which collect regular payments by Direct Debit can manage their cash flow much more easily that companies that collect payments by other means.
It doesn’t matter if you collect dozens of payments each month or just one payment a year, Direct Debit means that business owners know exactly what money is coming in and when – no matter their size!
- The myth #2
Direct Debit is of no benefit to my business.
Poor cash flow is one of the main reasons SMEs go bust. The biggest and healthiest looking order book in the world is no use if no money is coming in.
Getting the money in the traditional way, however, can be easier said than done. Cheques are forever 'in the post', the accounts clerk is perpetually 'on holiday', and the person who needs to sign off the invoice is always 'out of the office.'
With Direct Debit, those problems disappear instantly. With Direct Debit businesses know exactly when the money is coming in and how much they’re going to receive. It’s incredibly easy to set-up and cost effective to operate. And if for any reason a customer does miss a payment, your Direct Debit processing company will flag it up straight away, so it can be sorted out quickly.
- The myth #3
Direct Debit is expensive to set up and manage.
There is a perception that using any third party to collect money must be costly. Look at the figures, however, and it compares favourably with the cost of processing cheques or credit card fees.
Additionally, Direct Debit enables businesses to save many hours of laborious credit control. With Direct Debit there’s no need for your accounts team to chase invoices so companies can put their employees' time to much better use, or possibly even reduce staff costs.
- The myth #4
A Direct Debit system is difficult to set up.
Setting up a Direct Debit payment system takes about a month in total – dependent on bank approvals and credit checks etc. The process itself is incredibly simple and adding new clients can be done in minutes.
- The myth #5
Setting up a Direct Debit with a customer is time consuming.
It always used to be the case that new Direct Debit customers had to sign a paper instruction. This involved either a face-to-face meeting or communicating by post. In any event, it could become a time consuming and sometimes lengthy process.
Times, however, have moved on. Considerably.
Today, paperless Direct Debits are much more common. Customers can sign up over the phone, via email or online and all three ways are much quicker and less labour intensive.
These new methods also improve accuracy and, because they are so easy, increase sign-up rates.
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