Direct Debits: a guide to getting paid faster

Direct Debits: a guide to getting paid faster


For years, Direct Debit was exclusively for big businesses with many customers.

Technology has simplified and democratised the systems involved, meaning that any business can benefit from the speed, convenience and security of the Direct Debit payment method.  

You can use Direct Debits to get paid by your clients and customers, for any kind of invoices, and for any type of services or products. It doesn’t matter if you bill your clients for different amounts at different times. You don’t even need to bill them every month. 

You can use Direct Debit to get paid faster while eliminating much of the frustrating and time-consuming admin that normally goes hand-in-hand with credit control. 

And the good news is that opting for Direct Debit payments doesn’t require you to change how you invoice. 

It simply requires you to choose a Direct Debit provider and ask your customers to sign a Direct Debit payment mandate. You can continue sending your customers and clients invoices in the same way, saving time in the process.

Thanks to Tide’s partnership with GoCardless, the magic of Direct Debit is available to all our members. In this article, we explore the common questions small business owners have when considering using Direct Debit payments, our answers to Frequently Asked Questions (FAQs) about Direct Debits in general and a handy Glossary of related terms.

Table of contents

Using Direct Debit for your small business

Frequently Asked Questions

Glossary of Direct Debit terms

Using Direct Debit for your small business

As a small business owner, you know how much late payments hurt. Having to find time to chase unpaid invoices is frustrating, not to mention exhausting. And for every outstanding invoice, your cashflow becomes more uncertain. 

But what if there were a cost-effective solution to ensuring your customers pay on time? How can you reclaim your precious time to focus on building your business instead? The answer is Direct Debit payments. 

In this section, we’ll look at whether Direct Debit is suitable for your small business, how it works and how it can help you to avoid cashflow challenges.

Is Direct Debit suitable for my small business?

While the term Direct Debit might not fill you with joy, it absolutely should because this feature could dramatically change your life and your business. 

If you’ve been in business for a while, you’ll know just how time-consuming, complicated and frustrating it can be to have late payments, non-payments and incorrect payments.

Once you have a Direct Debit mandate established with your clients and customers, you can simply claim payment from their account when the invoice is due or at some point before the due date. 

Your clients will appreciate the convenience and time-saving because they no longer need to do anything when your invoice lands in their inbox. Instead of logging in to their business bank account and sending the payment, they can ignore your invoice and carry on working. They know your invoice will be paid automatically by Direct Debit.

So, what are the benefits of using Direct Debit for your small business?

  • Saves you time chasing payments
  • Eliminates the need to check your bank account constantly
  • Improves your cash flow (your money is in your account for longer)
  • Supports positive customer relationships (you won’t need to nag them for payment)
  • Reduces payment errors, oversights, and duplications from your customers, for both one-off payments and regular bills

Do you need a Direct Debit facility as a small business? 

One of the most frustrating experiences in business is spending time chasing payments. 

Have you ever missed a commercial target, taken out a loan, or paid salaries late because of late payers? Has a cashflow crunch prevented you from starting a new project or launching a new product?

If you’ve answered ‘yes’ to any of the above scenarios, it’s worth setting up Direct Debit payments. 

Direct Debit can accelerate your bookkeeping and improve your cashflow, and it doesn’t need to be expensive. 

The cost of using a Direct Debit service (typically a small percentage of the payment value) is usually dwarfed by the time-savings and cashflow improvements the service delivers.

What’s the difference between Direct Debit and standing orders? 

Direct Debit and standing orders are both automatic payment methods but have important differences. 

With a Direct Debit, you ask your customers to sign a mandate that allows you to collect payments directly from their bank account. This gives you complete control and guarantees you will receive regular payments. Even if the amount owed varies, Direct Debit is a convenient way to get paid faster.

With a standing order, your customer instructs their bank to pay you a fixed amount at set intervals (weekly, monthly, quarterly). This gives the customer complete control over payments, and they can cancel without notifying you. 

In reality, it’s unlikely that customers will set up standing orders to pay you because the amount and frequency are rigid, and the risk of incorrect payments is high.

How do you collect invoice payments by Direct Debit?

Setting up Direct Debit is quick and easy. The first step is to find a Direct Debit provider (we’ll explain how this works with Tide in a moment). Your existing business bank may provide this option, or you may need to bolt-on a third-party service. 

Once you have set up a Direct Debit facility, you will need to send each customer a Direct Debit mandate so they can approve the payments. This primarily involves the customer giving you their bank account details and signing an agreement. Direct Debit mandates can be created, sent, signed and managed electronically, making the entire process quick, efficient and secure. 

You then need to set up the individual Direct Debit payments. With Tide and GoCardless, for example, this involves selecting the Direct Debit option when you create an invoice. 

You must always notify your customers before taking any payments by Direct Debit, so ensure that there is a gap of a few days before the payment is taken.

Direct Debit payments take about 3 days to process, so you may want to factor that in when you choose the payment date.

Top Tip: If you want to make invoices and payments easier for your business and your customers, Tide’s partnership with GoCardless is a smart option to collect payments using Direct Debit. By saving time on your invoicing admin, you can get back to doing what you love: growing your business. Get started and sign up with Tide today ⏰

Which small businesses should use Direct Debit?

Most small businesses benefit from using Direct Debit. 

Does your business offer cleaning services? Do you deliver flowers? Perhaps you maintain a fleet of Bentleys? Regardless of the service you provide, you will benefit from using Direct Debit.

The only businesses that would not benefit from Direct Debit are retail companies that charge customers before delivery.

So, if you offer a subscription business, such as a support contract or a routine delivery, or you offer instalment payment plans, Direct Debit can work for you and your customers. The same applies if you need to invoice clients for irregular amounts, for services like graphic design, gardening, or app development. 

Direct Debit is a beneficial payment processing option for you and your customers.

How can Direct Debit help you avoid problematic customers?

You might be thinking that some of your customers may resent having to pay by Direct Debit, especially as Direct Debits put you in control of getting paid on time. 

But the reality for most businesses is that paying supplier invoices is a time-consuming hassle. It’s easy to lose track of invoices and forget to pay people on time. Creating a Direct Debit mandate eliminates one task from your client’s busy schedules. 

Customers who value your contribution and intend to pay will not object to the request. If your use of Direct Debit does deter a customer, it could be because they never intended to pay you.  

Is Direct Debit payment good for small business customers?

Yes. Direct Debit is a good option for most small businesses, with very few exceptions.

Direct Debit payments give your customers and clients convenience and security. They are also covered by the Direct Debit guarantee, which means your customers can get refunded if there’s a problem.

And the fact is that most small businesses want to pay their suppliers, and they’re happy to pay on time. The primary reason why so many invoices are paid late is that small business owners and managers are working flat-out to build their businesses. Admin and bookkeeping are one of the first tasks to drop off the to-do list because they don’t generate revenue. 

Giving your customers the option to pay by Direct Debit instantly removes an unproductive task from their workload.

How can Direct Debit improve cashflow? 

Payment by invoice is so commonplace that it’s easy to forget that this practice involves giving our customers credit. And while plenty of businesses assume that they will get 30 days (or more) to pay their suppliers, no law states this is mandatory. 

If your business struggles to operate when your customers pay 30 days after receiving your products or services, consider using Direct Debit to shrink the gap between invoice and payment.  

Improving your cashflow can enhance the security of your company, enable you to grow more rapidly and cushion any economic shocks that might occur.

Top Tip: Cashflow is the lifeblood of any small business. To learn how to manage your cashflow and maximise your chances of getting paid on time, read our guide that explains what a cash flow forecast is (and how to create one) 📊

Direct Debits: Frequently Asked Questions

If you’re looking for a quick introduction to Direct Debits, how they work and whether they’re cost-effective for your small business, below are our answers to Frequently Asked Questions (FAQs) from small business owners like you.

What are Direct Debits?

Direct Debits are an agreement you create with a customer, which allows you to claim authorised payments from their bank accounts on an agreed schedule. The payments can vary, and you can even skip months entirely if nothing is owed. Once your customer approves the Direct Debit mandate, you can claim payment for your invoices when they are due, rather than waiting for your customer to make payment.

How do Direct Debits work?

Direct Debits require a mandate (or Direct Debit Instruction). This is essentially a permission slip that your customer must approve so that you can claim payments by Direct Debit. 

When your customer owes you money for goods or services, you must send them an invoice with a clear confirmation of when the payment will be collected. 

To create the instruction to take payment, you will need to set up a Direct Debit facility. Your bank may offer this, or you can engage a Direct Debit bureau. 

A network of banks ensures that the payments can be taken on time from any UK bank account. All you need is a signed Direct Debit mandate from your customer and the capability to set up Direct Debits. The banks take care of the rest!If you bank with Tide, you can use our partnership with GoCardless and simply select the Direct Debit payment option when you create the invoice.

Can I use Direct Debits for variable payment amounts?

Yes. This is one of the best parts of the Direct Debit scheme. While other payment systems like subscription services and standing orders are ideal for regular, fixed amounts, it is easy to use Direct Debits to claim variable payments. This makes Direct Debits suitable for any kind of business, including those in service industries.

How do I make a Direct Debit payment?

If you are paying a supplier by Direct Debit, the money will be taken from your account on the agreed date. And if you are claiming a payment by Direct Debit, the money should be with you a few days after the collection date.

How long do Direct Debit payments take to clear?

Direct Debits are not instantaneous. For starters, you need to give your customers 10 days’ notice before taking the payment (although you may be able to agree on a faster schedule with your customer and your bank). Add to this the fact that your Direct Debit provider will need a few days’ notice to add the transaction to the queue. 

Once the Direct Debit payment is claimed, it takes about 3 days to reach your bank account.

Is paying by Direct Debit safe?

The Direct Debit system has been operating in the UK since the late 1960s, so it is thoroughly tried and tested. Underpinned by the Direct Debit Guarantee, your customers have the option to have any payment refunded if it has been taken in error and to cancel the Direct Debit mandate at any time, for any reason. The Direct Debit Guarantee also enshrines a customer’s right to be notified before any payment is taken. 

How much does Direct Debit cost?

As you would expect, there is a small cost for using the Direct Debit service. This covers all administration, management and technology fees related to the service. Most Direct Debit providers charge a small percentage for every Direct Debit payment, usually capped at a maximum fee. 

Glossary of Direct Debit terms

Direct Debits are relatively simple to set up and use. But, like anything related to bank accounts, payment methods and transactions involving company permissions, there’s still some complexity involved. There is also some specific terminology to understand.  You probably won’t encounter many of the terms below if you set up Direct Debit payments with Tide and GoCardless, but here’s our glossary in case you want to know more.

Advance notice

Before taking any Direct Debit payment, you must notify your customers at least 10 days before the payment is due. It may be possible to reduce this period if you negotiate with your customers and your bank beforehand. 

AUDDIS

The Automated Direct Debit Instruction Service. This is something that banks use to manage Direct Debit transactions. 

Bacs

Bankers’ Automated Clearing Services. This is the clearing system that all banks use to share Direct Debit information.

Counterclaim

If your customer believes that a Direct Debit has been taken in error, they can request a refund under the Direct Debit Guarantee. This refund request is also called an Indemnity Claim. If you believe that the payment was correct and should be taken, you can raise a counterclaim.

DDICA

A Direct Debit Indemnity Claim Advice message is what you receive when a customer requests a refund under the Direct Debit Guarantee.

Direct Debit Guarantee

The Direct Debit Guarantee protects customers from incorrect payments and provides a mechanism for correcting any mistakes. Specifically, the Direct Debit Guarantee ensures that customers are notified before payments are taken, gives customers the option to cancel the agreement at any time, and ensures that customers can get refunded when payments are taken in error.

Direct Debit instruction/mandate

The agreement established between a business and their customer. This can be done via a paper or electronic form that the customer completes, including their bank details. The agreement must be saved by the business that collects payment.

Due date

The date on which the payment is taken from the customer’s bank account. Direct Debit payments take a few days to clear, so if you arrange a Direct Debit payment to be taken on the 1st day of the month, it should be in your account on the 4th

Indemnity claim

If a customer believes that a Direct Debit payment was taken in error, they can make a refund request, known as an indemnity claim. 

SEPA Direct Debit

SEPA stands for Single Euro Payments Area, which is an EU scheme to simplify payments across European countries. SEPA Direct Debits allow you to claim payments from customers across Europe.

Service User Number (SUN)

This is a number given to a bank or service that has privileges to manage Direct Debit payments. If you are a small business using a service like Tide and GoCardless to manage Direct Debits, you probably won’t need to know about SUNs.

Using Direct Debit is quick and easy if you are a Tide customer. Tide, in collaboration with GoCardless, manages the Direct Debit mandates for you, and gives you easy controls for managing when you get paid. Spend less time managing your admin and more time building your business. Get Tide and start using Direct Debit 🎊

Photo by Christina Morillo, published on Pexels

Adelaide Carleton

Adelaide Carleton

Stay in the loop

Get access to our latest features, offers and business tips:

    By subscribing you agree to receive marketing communications from Tide. You can unsubscribe anytime using the link in the footer of any of our emails. See our privacy policy.

    Thanks for signing up.

    Related Articles

    Image of Tide card

    A business bank account that's free, easy to open, and helps you start doing what you love.

    Tide is about doing what you love. That’s why we’re trusted by 450,000+ sole traders, freelancers and limited companies throughout the UK.

    Open an account
    Image of App Store 4.7, 27k
    Image of Google Play 4.6, 3.7k