Why don't more businesses use Direct Debit?
September 28, 2020
Market insight by Luisa Grey, Director, Eazipay Ltd
Since the first Direct Debit was presented in 1970, this form of payment has become ever more popular. 2019 was a record year when more than 4.5 billion Direct Debit transactions were made with a total value in excess of £1.3 trillion.
Despite these spectacular figures, however, lots of businesses still don't use Direct Debit as a method of collecting payments from their customers. Luisa Grey, a Director at leading Direct Debit and automated payment processing company, Eazipay Ltd, has some theories as to why this might be.
At the risk of inducing a fact overload, here are a few more.
In 2012, Direct Debit payments overtook cash payments for the first time. Eight out of 10 of the UK population have at least one Direct Debit. Seventy nine per cent of people feel positively about Direct Debits - a figure which is at an all-time high. And 63% of people prefer to pay most of their bills by Direct Debit.
These statistics paint a very clear picture: the UK population is very comfortable understanding and using Direct Debits. They trust them and they want to use them more. Some businesses, however, don't seem to be getting the message and are still relying on cheques, credit cards and cash and I have a number of theories as to why this might be.
There's a perception that Direct Debit is a 'big company' product. Try and think back to your first Direct Debit and who it was set up with. I'm guessing it was probably one of the big utility companies, or maybe BT. Because of that, if you're not a PLC, there's a school of thought that Direct Debit isn't for you.
In fact, the vast majority of our customers are SMEs, and they’re all very different. Some collect Direct Debits on a monthly basis, some quarterly and some once a year. And they are all for varying amounts from just a few pounds to hundreds and thousands of pounds. Despite their differences, however, they all have one thing in common. They’ve all seen the benefits of Direct Debit.
Companies think it is difficult to start. Not true. Setting up a Direct Debit payment system is incredibly simple and straightforward and adding new clients or payments can be done in minutes. The best processing companies out there will walk you through it every step of the way and shouldn’t confuse you with unnecessary jargon.
Businesses don't see the benefits. For all SMEs – now more than ever -, control of their cash flow is paramount and a huge part of that is getting payments in on time.
Late and missed payments continue to be major issues for businesses. According to figures from Pay.UK, which runs the Bacs Direct Debit payment system, the UK SME late payment debt has risen to a staggering £23.4 billion, up £10.4 billion on the £13 billion owed in 2018. On top of that, the number of SMEs experiencing overdue payments has hit 54 per cent, which is the highest level since 2015.
Getting the money in, 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, all those problems disappear in an instant. All that's required is one signature from the customer to set up the process and the money comes into your bank on the same day every month. And if for any reason the money isn't paid, the processing company will flag it up straight away, so you know there's a problem and can deal with it straight away.
The number one reason companies come to us to set up Direct Debits is to improve their cash flow and once they join, they also see that it improves customer retention rates.
Companies think it's expensive. I’m really not sure where this perception comes from, except that in theory using any third party to collect money will carry a cost. Look at the figures, however, and it compares more favourably than the cost of processing cheques or credit card fees.
Additionally, Direct Debit enables businesses to save many hours of laborious credit control. Companies can put their employees' time to much better use, or possibly even reduce staff costs.
Luisa Grey is a director of Eazipay Ltd, one of the UK’s largest and fastest growing automated payment processing companies. Eazipay provides regular Direct Debit collection and processing services to thousands of SMEs and corporate organisations in a wide range of market sectors throughout the UK, Europe and beyond.
For more information visit www.eazipay.co.uk