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Direct Debit in a nutshell: A guide for merchants

The best way to collect recurring payments.

Direct Debit - also known as ACH Debit or bank debit - is a popular payment method to collect bills of all kinds, including utility payments, membership subscriptions, charitable donations, and for B2B invoicing.

As of December 2019, we here at GoCardless - specialist Direct Debit providers - process $13 billion worth of Direct Debit transactions for over 50,000 customers around the world.

Direct Debit is highly versatile

Direct Debit is great for:

  • Recurring bills for variable amounts - Direct Debit is a great way of collecting variable amounts for companies that invoice customers depending on how much they use or buy.

  • Fixed subscriptions or memberships - Direct Debit is perfect for recurring payments, such as magazine subscriptions or gym memberships, due to its low cost and high retention rates.

  • Taking payments on account - If you have an ongoing relationship with your customers, Direct Debit is a good option for them to spread costs or pay on account.

Direct Debit is perfect for regular payments

Collecting payments with Direct Debit has four main benefits:

  1. Puts you in control - Late payments reduce your cash flow and increase your admin time, as you have to spend time and effort chasing them. But Direct Debit lets you collect payments as soon as they’re due. For example, Has Bean Coffee reduced its average payment period from 62 to 41 days, by switching to Direct Debit with GoCardless.

  2. Automatic - Once authorized, you can take payments from customer accounts with no further action needed from them. If you’re collecting fixed amounts at regular intervals, Direct Debit becomes a set and forget payment method - for you and your customer, payment happens automatically.

  3. Cost effective - With Direct Debit, you can avoid expensive credit and debit card transaction fees, which can be around 3% each. Here at GoCardless, we offer several competitive pricing options.

  4. Flexibility - Unlike standing orders, Direct Debit allows you to change payment amount and frequency without customers needing to re-authorize. So you can take variable amounts or increase prices whenever needed, with no admin hassle. This also gives your customers an easy way to spread the cost of their payments.

Direct Debit can be used for one-off payments

Although Direct Debit is usually associated with regular and recurring payments, it can also be used for collecting one-off payments.

It’s important to remember that Direct Debit is not an instant payment method, so shouldn’t be used where immediate transfer of funds is needed, such as for e-commerce.

Direct Debit and GoCardless

GoCardless is made for recurring payments. We are a specialist Direct Debit provider, used by over 50,000 organizations around the world, ranging from small businesses to large companies such as DocuSign and TripAdvisor.

Our system can be set up in seconds and managed online, along with the option to integrate our API with your website and CRM.

To find out more about using Direct Debit for your business, check out our guide to taking payments with Direct Debit.

GoCardless makes it easy to collect recurring payments

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GoCardless Ltd., 600 California St, San Francisco, CA 94108, USA

GoCardless (company registration number 07495895) is authorised by the Financial Conduct Authority under the Payment Services Regulations 2017, registration number 597190, for the provision of payment services.