Direct deposit vs. direct debit: Which is right for your business?
Learn how to improve your company's cash flow by offering direct debit as a payment option to your clients.
If your organisation provides services to other businesses, you will be used to receiving payments in a certain way. For example, you may have agreed that each company will pay any outstanding dues via a direct deposit to your bank. Yet you may not be too happy with this arrangement as some of your clients seem to miss the due date too frequently, and you may spend too much time chasing their obligations.
Here's why you need to look more closely at your payment options and consider a different approach.
The perils of late payment
If you have to wait too long to get paid for services rendered, you will likely incur additional costs. If the problem is serious, it may even impact your business growth.
According to some estimates, one-third of small businesses grew more slowly due to late payments than those paid on time. Larger companies paid more than half of all invoices late, and on average, the delay was 23 days. It is little wonder that this problem could cost every small business in Australia around $52,000 per year.
What's the solution?
You may wonder what you can do to fix such a problem. You may have direct deposit arrangements in place already – and isn't direct debit the same?
Direct deposits rely on the customer to take action first. You give the company your banking details and, once they've initiated the payment, the funds will appear in your account.
On the other hand, direct debit (aka the Bulk Electronic Clearing System, or BECS), does not rely on a client taking action each period. Once they have followed the initial instructions, the process is automatic.
To set this up, you will need to get a formal authorisation from your client, which will allow your company to withdraw the appropriate amount directly from their bank account or credit/debit card. In your case, Ezidebit can handle this for you to help take the pain and complexity out of these payments and to make life easier for you.
Direct Debit is one of the easiest and safest ways to allow your customers to pay their bills. As a business owner, you’ll find increased cash flow as your larger invoices are split into bite sized payments, with more regular income for your services. For your customers, managing regular and recurring bills becomes easier as they have personalised payment schedules that work for both them and your business.
What are the pros and cons of each?
Fast and convenient
Low costs associated with the collection of payment
Relatively simple to set up
Makes the payment easier and simpler for both the customer and the business
Some customers may resist as they feel that they want to 'keep control' of payments, especially where amounts may vary.
Eliminates cheques and associated processing time
Relies on the customer to take action
Making the change
If you want to say goodbye to those missed payments associated with direct deposit, get in touch with Ezidebit. Instead, we can set up a direct debit option, which will help you predict your revenues, improve your cash flow, and normalise your income stream.
We will also provide you with a one-stop-shop approach to reports, reconciliations, and transaction data. We will fully support you and your clients so that you understand the payment process at every stage.
Learn how an automated payment process like this can help you to improve your competitive advantage. You can also learn more about implementing automated payments software here. Contact Ezidebit today for more information.