How to Set up Direct Debit for Business and Customers

Team Nomi

May 23, 2024
8 minutes read

Setting up a direct debit for your business allows you to automatically collect recurring payments from customers’ bank accounts. This convenient payment method ensures timely and reliable cash flow for your company. 

Direct debit offers significant benefits for both businesses and customers. For businesses, it reduces late payments, cuts down on administrative costs for invoicing and collections, and improves cash flow predictability. Customers appreciate the convenience of automated payments and the consumer protections that direct debit provides.

Getting started with direct debit is straightforward. You can set it up directly through your bank, or use a specialised direct debit provider that integrates with your billing systems. Either way, you’ll need to obtain upfront authorisation from customers. Once enabled, payments will be pulled from customer accounts on the specified dates.

With direct debit in place, you can spend less time chasing overdue invoices and more time focused on growing your business. The automated nature of direct debit frees up valuable resources while keeping your revenue stream consistent.

What is Direct Debit?

Direct debit is an automated payment method where a business can pull funds directly from a customer’s bank account regularly. It allows companies to collect payments for things like subscriptions, invoices, or membership fees.

The customer provides advanced authorisation for the business to debit their account for a set amount on predetermined dates. This makes direct debit different from a credit card charge, which is pushed from the customer’s end.

Direct debit payments are processed through an automated clearinghouse (ACH) network that transfers funds electronically between bank accounts. For customers, it’s a convenient “set it and forget it” way to pay bills.

Benefits of Direct Debit for Businesses

1. Improved Cash Flow: Direct debit ensures timely and predictable payment collection from customers. Funds are automatically transferred on the due date, eliminating delays from manual invoicing and payment methods. This consistent cash flow allows for better financial planning and management.
2. Reduced Administrative Burden: With direct debit, there’s no need to manually process payments, track down late payers, or send payment reminders. This automated approach minimises accounts receivable workload and associated overhead costs.
3. Lower Payment Processing Costs: Direct debit transactions typically have lower processing fees compared to credit card payments. This can lead to significant savings, especially for businesses with recurring billing models.
4. Decreased Default Rates: Customers are less likely to miss or delay a direct debit payment since the funds are pulled automatically from their accounts on the due date. This lowers the rate of payment defaults and delinquencies.
5. Increased Customer Retention: Offering direct debit demonstrates convenience for customers and strengthens relationships. Automated payments reduce friction and make it easier for customers to stay subscribed to services.
6. Integration with Accounting Software: Many direct debit providers integrate seamlessly with popular accounting and billing platforms, make an easy reconciliation and reporting processes.

By using direct debit, businesses can optimise their revenue cycle, reduce operational costs, mitigate risk, and foster better customer experiences through effortless payment processing. The efficiency gains allow teams to focus on core growth objectives.

Benefits of Direct Debit for Customers

1. Convenience: Direct debit eliminates the hassle of remembering to make manual payments each month. Customers can “set it and forget it” once they authorise recurring payments.
2. On-time Payments: Since payments are automatically deducted, customers never have to worry about missing a due date and incurring late fees. Their bills always get paid on time.
3. Consumer Protections: Direct debit schemes like those operated by Bacs provide robust safeguards for customers. Payments can be canceled or refunded if errors occur.
4. Avoid Credit Card Fees: With direct debit, customers pay directly from their bank account with no credit card processing fees tacked on.
5. Maintain Good Credit: By ensuring on-time payment of bills, direct debit helps customers avoid missed payments that could negatively impact their credit scores.
6. Spread Out Costs: Some companies allow customers to set up multiple direct debits each month to spread out larger expenses over time rather than one lump sum.

With direct debit, the payment process becomes seamless and worry-free for customers. They get the convenience of autopay combined with strong consumer protections.

How to Set Up Direct Debit for Your Business

Setting up direct debit for your business is a straightforward process that can be accomplished in a few key steps:

1. Choose Your Setup Method: You have two main options – going through your bank or using a third-party direct debit provider. Many businesses prefer providers as they offer more automated features and integrations.
2. Obtain a Direct Debit Instruction (DDI): The DDI is the legal agreement that allows you to collect payments from a customer’s bank account. You’ll need to provide customers with a DDI mandate to fill out and sign.
3. Set Up Customer Payment Details: Once authorised, you’ll input the customer’s bank account and payment information into your system or direct debit provider’s platform. Double check all details are accurate.
4. Notify Customers of First Payment: Before any money is collected, you must notify customers of the upcoming first payment date and amount according to the direct debit rules.
5. Submit Payment Files: On each scheduled payment date, you’ll need to submit a payment file with all the customer direct debit details and amounts to be collected.
6. Automate Notifications: Set up automated notifications to alert customers ahead of future payments being collected from their accounts.

By following these steps, you’ll have direct debit fully implemented, allowing you to efficiently collect recurring payments with less administration. Many providers offer additional features like retry logic, reporting, and integration with your billing systems.

How to Set Up Direct Debit for Your Customers

Setting up a direct debit with your customers is a straightforward process that will make your billing and collections easy. Here are the key steps to follow:

1. Choose a Direct Debit Provider: First, decide if you want to use your bank or a third-party direct debit provider. Many businesses prefer providers as they offer more automated features and integrations with billing software.
2. Send Advance Notice to Customers: Give your customers a heads up that you’ll be switching to direct debit payments. Explain the benefits and instructions so they are prepared.
3. Obtain Customer Authorisation: You’ll need to collect authorisation from each customer to debit their bank account. This can be done by having them fill out a paper or online direct debit mandate form.
4. Set Up Customer Payment Details: Once authorised, gather the customer’s bank account and routing numbers to enter into your direct debit system. Double check this information is accurate.
5. Schedule Payment Dates: Decide on the recurring dates you want to debit customer accounts, such as monthly, quarterly, etc. Many providers allow flexible scheduling.
6. Send Payment Reminders: As a courtesy, send customers reminders a few days before their accounts will be debited. This increases transparency.
7. Automate the Process: With everything set up, direct debits will occur automatically according to your scheduled dates. Funds are transferred directly into your business account.

By following these steps, you’ll have direct debit up and running to make billing easier for both your business and customers. The process is simple and with the right provider.

If you’re looking for a direct debit payment provider for your business in UK, NomiPay is an excellent choice. NomiPay specialises in direct debit solutions, offering a user-friendly platform with robust features.

Features of Nomipay

NomiPay Direct Debit Solution

• Collect payments directly from customers into your payment wallet via invoices
• “Pay Now” button on invoices for customers to pay immediately 
• Set up automated direct debits for recurring invoice payments

Comprehensive Dashboard

• View all accounts receivable from different customers in one place
• Track daily payouts and funds in your payment wallet

Pay Now Button

• Customers can click to make instant payments 
• Support for debit/credit cards, Apple Pay, Google Pay, and internet banking

Automated Direct Debit

• Set up one-time or recurring direct debit payments on invoices
• Payments automatically collected on the due date

Get Paid Faster

• No more waiting or chasing customers for payments
• Direct debit and “Pay Now” options ensure timely collections

Automated Bookkeeping Integration

• Seamless integration with accounting/bookkeeping software
• All payments automatically recorded and synced

Save Time on Admin

• No manual data entry required
• NomiPay handles payment tracking and reconciliation  

Better Customer Experience

• Direct payment options are convenient for clients
• Shows you value their time and needs

Maximum Security

• Stringent security protocols – 3DS, PCI, and PSD2 compliant
• Partner with UNIPaaS for a secure payment experience

Cost-Effective Pricing

• Zero setup cost
• No monthly fees
• Automated bank reconciliation included

With NomiPay, you’ll benefit from seamless integration with your existing systems and automated direct debit processing. Their platform prioritises security and compliance to protect your payments. NomiPay’s transparent pricing structure avoids hidden fees.

NomiPay customers rave about their exceptional customer support. The team provides hands-on assistance through setup and ongoing guidance as needed.To experience the NomiPay difference for yourself, start with their free trial or book a demo. See firsthand how our direct debit solution can make your billing easy and improving cash flow.