Monday, 17 March 2014

Why don't more businesses use Direct Debit?

Since the first Direct Debit was presented in 1970, this form of payment has become ever more popular. 2013 was a record year for Direct Debit. More than 3.5 billion transactions were made with a total value of £1.1 trillion.

Despite these spectacular figures, however, lots of businesses still don't use Direct Debit. Luisa Grey, a Director at leading Direct Debit processing company, Eazipay Ltd, has some theories as to why this might be.

At the risk of inducing a fact overload, here are a few more.

In 2012, Direct Debit payments overtook cash payments for the first time. Eight out of 10 of the UK population have at least one Direct Debit. Seventy nine per cent of people feel positively about Direct Debits - a figure which is at an all-time high. And 63% of people prefer to pay most of their bills by Direct Debit.

These statistics paint a very clear picture: the UK population is very comfortable understanding and using Direct Debits. They trust them and they want to use them more. Businesses, however, don't seem to be getting the message and are still relying on cheques, credit cards and cash and I have a number of theories as to why this might be.

There's a perception that Direct Debit is a 'big company' product. With which company did you have your first Direct Debit? I'm guessing it was probably one of the power companies, or maybe BT. Because of that, if you're not a PLC, there's a school of thought that Direct Debit isn't for you. In fact, the vast majority of our clients are SMEs, and they’ve all seen the benefits of Direct Debit.

Companies think it's difficult to start. Not true. Setting up a Direct Debit payment system is incredibly simple and straightforward and adding new clients or payments can be done in minutes. The best processing companies out there will walk you through it every step of the way and shouldn’t confuse you with unnecessary jargon.

Businesses don't see the benefits. For all SMEs, control of their cash flow is paramount and a huge part of that is getting payments in on time.

Late and missed payments continue to be major issues for businesses. A recent survey showed that well over half (60%) who experienced cash flow difficulties blamed late payments.

Getting the money in, however, can be easier said than done. Cheques are forever 'in the post', the accounts clerk is perpetually 'on holiday', and the person who needs to sign off the invoice is always 'out of the office.'

With Direct Debit, all those problems disappear in an instant. All that's required is one signature from the customer to set up the process and the money comes into your bank on the same day every month. And if for any reason the money isn't paid, the processing company will flag it up straight away, so you know there's a problem and can deal with it straight away.

The number one reason companies come to us to set up Direct Debits is to improve their cash flow and once they join, they also see that it improves customer retention rates. It's much easier to not write a cheque than to ask your bank to stop a Direct Debit.

Companies think it's expensive. I have no idea where this perception comes from, except that in theory using any third party to collect money must be costly. Look at the figures, however, and it compares more favourably than the cost of processing cheques or credit card fees.

Additionally, Direct Debit enables businesses to save many hours of laborious credit control. Companies can put their employees' time to much better use, or possibly even reduce staff costs.

Luisa Grey is a director of Eazipay Ltd, one of the UK’s fastest growing Direct Debit processing companies. The company provides regular Direct Debit services to over 1,000 companies in a wide range of market sectors throughout the UK, Europe and beyond.

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