What is direct debit and how does it work

3 min read

As a business owner, you’ve probably heard some of the same old excuses from customers for not paying you on time. “It must have slipped through”, or that golden oldie “I haven’t seen that invoice yet”. Using direct debit is a very simple way to avoid all these excuses, take control of payment collections and improve your cash flow.

What is the difference between direct debit and direct credit?

Direct credit and direct debit are often used interchangeably, but the two phrases mean different things. Direct credit refers to payments made by businesses, while direct debit refers to payments received by businesses. An example of direct debit is receiving monthly gym payments while an example of direct credit is setting up a money order to pay your office rent.

How Ezidebit's does direct debit work in Australia?

Direct Debit allows your business to automatically collect money from your customers' credit or debit cards, and bank accounts. You agree on the timing, amount and frequency of when you are paid with your customer, who then signs a direct debit authority that allows you to have direct control over payment for your services. Once authorised by the customer, the business’ chosen payment provider (e.g. Ezidebit) will collect the agreed funds and deposit them into the business’ account.


Read More: How does Direct Debit work?


What are the key features and benefits of direct debit?

Direct debit comes with a number of benefits and features. Some of these features include:

Constant and reliable cash flow

When your business uses direct debit, you have control over how and when you receive payments. Your customers don't need to remember to make the payment themselves, and everything happens automatically, giving you certainty and predictability over your income revenue.

Reduce admin time

Once your customers are set up to pay via direct debit, from here on out you can enjoy the benefits of automation. From payment reminders to automatic payment reconciliation, you’ll spend much less time on your business admin leaving you time to focus on what’s really important - growing your business.

Cost effective

Time is money — so by reducing the time you spend on managing your day-to-day reconciliation and following up payments, you get to invest time elsewhere in the business.

“As business owners, we often get trapped into thinking we have to do everything ourselves. We hate the thought of spending money if we don't have to. But if you spend some money and get a specialist to work on a part of the business you're not so capable in — you will get a better return on your time and your investment. Plus, the specialist will likely do a better job.” — Jordan Berry, Owner of Kaizen Fitness


Read more: Ezidebit’s Direct Debit payment solution


What types of businesses or industries benefit from direct debit?

Direct debit can be used for almost anything but is mostly used to pay for regular products and services such as gym membership fees, consulting fees, childcare fees, allied health treatments and other general business.

Let's take a look at how direct debit works across three different industries.

Health and fitness

Fitness businesses survive on client retention, which means regular payments either weekly or fortnightly. If they don’t have an automatic payment method such as direct debit, it may run into issues with late payments. This is something that can be avoided when automatic payments are the mainstay.

Case in point: Kaizen Fitness

Kaizen Fitness is a health and fitness business — owned by Jordan Berry — centred on continual improvement of his clients’ health and wellbeing. When Jordan first started his business, he had problems collecting payments from his clients.

Jordan said Ezidebit took away the accounting nightmare of following up multiple clients each week to see if they’ve paid for training.

“It’s taken the pain out of processing and receiving payments — completely eliminated it — and created more time for us to focus on training our members and enhancing their experience with us,” Jordan said.


Read more: The best customer retention strategies to implement in your business


Consulting

A lot of consulting businesses rely on monthly retainers for their regular clients. However, the process of collecting these retainers every month can be time-consuming. In some cases, it can be extremely costly, especially when relying on credit card payments. Using direct debit will save your business money and time, allowing you to take advantage of automatic and seamless payment methods.

Case in point: Revealed Resources

Barbara Sauter and Rashid Kotwal run Revealed Resources, a consulting firm that helps businesses to maximise their profits. Since most of their clients were very busy, Barbara and Rashid had issues collecting payments, which put a strain on their cash flow.

When they started using Ezidebit’s Direct Debit payment solution, collecting payments became much easier and faster. "Rather than sending them an invoice to pay when they got around to it, we opted for a more automated solution," Rashid said.

Construction and property maintenance

It's common to see large-scale and expensive projects in this industry. This means keeping aged receivables low and reducing inefficiencies in administrative tasks is a top priority. Direct debit can ensure timely and regular payments with minimal admin time required.

Case in point: Right Look Property Maintenance

Ross O’Halloran is the owner of Right Look Property Maintenance. The company has 12 different franchises located in Australia offering a variety of maintenance services, with rental property maintenance and handyman services.

Right Look have been using Ezidebit’s direct debit payment solution from day one and use it to collect weekly royalties from franchisees. Using the solution to its full advantage allows him to operate the business effectively without the uncertainty surrounding cash flow.

“When I see that notice every week, I know there’s money in the account,” Ross said. “That’s the ease of things with Ezidebit, it’s very reliable.”

How to set up direct debit payments with a leading direct debit provider

Setting up a direct debit with Ezidebit is not a complicated process, it’s the only set-and-forget payment system you’ll need. Our setup process is quick, reliable, and easy. You can contact us today to get started. Alternatively, you can download Your Quick Guide to Direct Debit below to have all the info you need to feel confident about making a decision for your business.

Download your quick guide to Direct Debit