Direct debit: What you need to know and consider

In 2019, 900 million direct debit payments were made in Australia, totalling over $2.7 trillion worth of payments. These figures show Australians are comfortable with recurring payments, with significant benefits for both businesses and their customers.

 

In this guide we’ll cover: 

  • What is direct debit? A definition of direct debit

  • When would I use direct debit?

  • Is direct debit safe?

  • How does direct debit work?

  • What are the benefits of direct debit for your business?

  • How do you set up direct debit?

  • How do I cancel or change a direct debit?

  • How often are direct debit payments made?

  • Are customers under contract using direct debit?

  • Do I need to invest in expensive software to offer direct debit?

  • How does direct debit compare to other payment methods?

  • How do I apply for an Ezidebit account so I can offer direct debit to my customers?

 

 

What is direct debit? A definition of direct debit/recurring payments

Direct debit is a pre-authorised payment set to a fixed or varying amount. It is paid to a business by a customer for an agreed amount, frequency (weekly, fortnightly, etc.) and for an agreed period of time. 

When a customer signs a direct debit agreement, this means they are consenting for money to be drawn from their credit/debit card or bank account. 

In Australia, recurring payments from a bank account are performed through a Bulk Electronic Clearing System (also known as BECS), which is managed by the Australian Payments Network Limited. BECS direct debit payments are done via bank to bank communication. Alternatively, direct debits or recurring payments can be drawn from a customer’s credit/debit card via card networks such as Visa and Mastercard.

Every BECS direct debit payment is listed on the customers’ bank account in two fields including: the name of the merchant (business) and the lodgement reference unique to the transaction. These are known as statement descriptors.

For example, the following statement descriptors apply to customers of businesses who use Ezidebit in Australia: 

  • For bank accounts, your business name (first 16 characters) will display on the account holder’s statement. 

  • For credit cards, the descriptor will be EZI* <business>  (first 16 characters).

For businesses that use Ezidebit in New Zealand, Merchant Identification Names (MID) are displayed on the statement. MID names display Ezidebit’s name and a reference to the industry of the business you have a direct debit agreement with. For example, EZIDEBIT HEALTHFIT, EZIDEBIT STORAGE or EZIDEBIT ACCOUNTING.

 

When would I use a direct debit?

Direct debit can be used for almost anything, but is mostly used to pay for regular products and services, including:

As you can see, direct debit really is a diverse payment solution for a variety of businesses. Let’s take a look at some of the current direct debit usage rates in Australia:

  • Direct debits are continuing to grow by around 10% each year.

  • Direct debits make up about 20% of all non-cash payments in Australia. 

  • Cash is becoming significantly less popular. ATM withdrawals in April 2020 are down 30% in March and down 40% compared with the same time last year, according to Reserve Bank data.

 

Is direct debit safe?

Direct debit doesn't require card numbers, PINs, passwords or any other sensitive data, making it a highly secure and reliable payment solution. 

When considering a direct debit payment provider, make sure you choose one that is Level 1 fully compliant with the Payment Card Industry Data Security Standard (PCI-DSS).

Modern cybersecurity threats are becoming more sophisticated and it’s understandable that many businesses are concerned about the security and safety of their payment processing options.

 

How does direct debit work?

Direct debit is an easy way for a customer to pay a business for a recurring service or product (here are some products and services direct debit is perfect for). A business and its customer come to a signed agreement for an agreed amount, frequency and duration. 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.

This authorisation from the customer ignites a chain of communication between the business, cloud payment provider, and the customers financial institution as illustrated below.

 

 

Infographic of how a direct debit solution works

 

 

What are the benefits of direct debit for your business?

  • Secure payment method:  Direct debit is a highly secure and reliable payment method, particularly when you use a payment provider that is fully PCI-DSS compliant. Not sure what that means? Find out more about PCI-DSS compliance, here.

  • Easy to set up, easy to run: Modern paperless solutions are extremely streamlined and automated, with customers able to quickly and easily authorise the service. Once authorised, customer payments are handled automatically with very little input from the customer or the business. 

  • Constant, reliable cash flow: Improve the speed and amount of your inbound cash flow, to give you a more accurate forecast of incoming revenue and outgoing expenses. 

  • Less awkward money chat: It’s time to stop having  awkward conversations with your customers about late payments or unpaid accounts. Don’t rely on your customers to remember to pay their monthly invoice or fortnightly payment. Instead, you can receive funds on a set schedule that works for both you and your customers. 

  • Plenty of flexibility: Just because it’s recurring, a good direct debit payment solution isn’t rigid or inflexible. Your solution should cater for adjustments of payment terms throughout the life of the contract; for example, allowing you to easily tweak payment schedules to suit your customers’ personal commitments such as taking an extended holiday or travelling for work.

  • Encourage customer retention: Direct debit is a great way to encourage customer retention and improve recurring revenue. This is because it creates a simple payment method that can easily be renewed and maintained over long periods of time. Your customers don’t have to continuously set up payments to your business, it happens automatically. 

  • It’s not expensive to implement: A direct debit solution tailored to the needs of your business can be extremely affordable and easy to integrate. Plus, it should be cloud-based, so there’s no hardware required to be purchased.

 

How do you set up a direct debit?

Setting up direct debit payments for your customers is easy. Today, paperless direct debit solutions are extremely streamlined and automated to make it a simple set-up process.

You can offer your customers multiple methods to set up direct debit, including:

Online form: You can share a form via a link or hyperlink a button on your website. Customers will need to fill out their details and authorise the agreement. Once completed, the payment schedule will become active.

Email payment request: You can trigger a notification request from your payment platform directly to your customer to complete a digital direct debit request agreement. Once they enter their payment details and authorise the agreement, the payment schedule will become active.

In person:  If your customer is with you, simply enter their details straight into your payment provider’s system or via integrated software. They can enter their payment details and authorise the plan on the spot for instant approval.

Paper form: Your customers can fill in and sign a hard copy of a Direct Debit Request (DDR) form. You’ll then need to enter their details into your payment provider’s portal or your integrated software. The signed DDR form must be stored securely by your business, in accordance with PCI-DSS requirements.

 

How do I cancel or change a direct debit?

Your customers simply contact you if they wish to amend, pause or cancel their payment schedule. You can update this yourself either directly through your payment provider’s portal or integrated business software. 

But keep in mind that while most changes can be made online, there may be some adjustments that require a new direct debit form to be completed. This is required when the goods or services being delivered change from the original agreement.

Some scenarios where a new direct debit agreement needs to be made include:

  • A fortnightly gym membership being moved to a monthly debit on a new amount with a renewed 12 month agreement.

  • A customer has been paying for service A (i.e personal training) and now wants to combine service A and service B (i.e personal training and nutrition plan).

In the examples mentioned above, rather than an adjustment to the days that are being billed (which can be done online without a new agreement), the services offered for the payment have changed completely.

 

How often are direct debit payments made?

This is up to you as the business owner, and can be tailored to suit your requirements. 

You could:

  • Align it with your business expenses: For example, if you pay business’ rent, staff and utilities monthly, your customer payments can be put on the same schedule or more frequently.

  • Charge less, more frequently: By breaking down larger payments into small-bite sized amounts, you can help your customers manage their cash flow. This will also decrease the likelihood of late or dishonoured payments.

 

Are your customers under contract using direct debit?

Direct debit is a mutual agreement, not a contract. While it offers your customers a more manageable way to pay, there is no legal commitment.

However, it's common for businesses to ask their customers to sign a separate agreement with their own specific terms and conditions, such as a 12-month gym contract. This particular agreement is binding, but the direct debit is a separate agreement outlining the payment method, and is not a guarantee or legal contract of funds.

Your customers should feel encouraged and liberated by the flexibility of a payment method, not trapped by it, which will help gain their loyalty and trust. With direct debit, this is easy to achieve.

 

Do I need to invest in expensive software to offer direct debit?

No. Using a cloud-based direct debit solution is  simple to set up and quick to transition your customers onto.

 

How does direct debit compare to other payment methods?

Some companies rely on just one payment method such as direct debit. Others need a combination of direct debit and other payment methods to ensure they are providing their customers with the best payment experience possible.

What are the main differences between direct debit and other payment methods?

Payment Method

Best for

Top benefits

Direct Debit

Recurring or regular transactions

  • Set and forget payment solution 

  • High level of flexibility to collect fixed or variable amounts at a specified time.

Real Time Payments

Instant payments

  • The most convenient solution for missed, catch up or on-the-spot payments.

  • Instant payment response which means your customer knows straight away if the payment was successful or not 

  • You can take payments either via your website using a secure payment page, in person or over the phone, or send your customers a customisable payment link.


BPAY

Larger or one-off transactions

  • Your customers instigate the payment through their mobile or online banking 

  • Suited to larger or one-off transactions, including invoice payments and online purchases

 

EFTPOS

Card-present transactions

  • Simple, portable and secure payment terminal solution that enables you to take card-present transactions

  • You can link some machines for centralised reporting 

  • Automatically reconciles and updates at the end of each day saving you the hassle of manual record updates

 

 

There’s no doubt the payments landscape is continually changing and it has never been more important to offer seamlessly integrated payment technology.

Ezidebit’s payment product suite helps you bring Direct Debit, EFTPOS, BPAY and Real Time payments together for simplicity and ease. 

Every payment and the customer data that comes with it is handled and processed securely within Ezidebit's level 1 PCI-DSS compliant system. 

Our flexible solution allows you to have complete control and visibility, ensuring you can continue to deliver greater value and a better payments experience than your competitors!

 

How do I apply for an Ezidebit account so I can offer direct debit to my customers?

Click here to get in touch with us and we’ll customise a solution for you to suit your business’ needs. Then you simply need to fill in an application form, and we’ll work with you to get your account established and ready to use.