Why & How To Offer U.K. Direct Debit For Recurring Billings

Written by: Terry Jones

Customers should always feel empowered to pay for goods or services in the way they prefer. If only one payment method is offered, there is a greater risk of losing potential customers if they don’t wish to pay that way.

Whether you are starting a new business in the U.K. or you’re already offering goods or services to U.K. customers, consider offering Direct Debit for your recurring payment collections.

What’s so great about Direct Debit?

Popularity

It is one of the most popular methods in the U.K. to pay for recurring bills and services, and is an essential part of the country’s economy. In fact, over 90% of U.K. consumers have at least one Direct Debit set up to pay a bill, membership, subscription, or donation. Bacs, the organisation behind the Direct Debit scheme, claims that more than a third (38%) of U.K. households are “heavy” users, having more than six Direct Debits.

Over 90% of U.K. consumers have at least one Direct Debit set up to pay a bill, membership, subscription, or donation. Click To Tweet

Easy for consumers

Direct Debit is a trusted payment method among U.K. consumers. They are already familiar with it, and understand that it involves minimal effort. Once a customer signs up to your service with their payment details, they won’t have to fill out any payment information again and will know when and how much is taken out of their account.

Trust

Another reason why consumers trust this method is because of the Direct Debit Guarantee. It provides assurance to the payer that any monies taken in error will be refunded immediately by their bank. All banks and building societies that accept instructions to pay by Direct Debit provide this guarantee.

Automation

Automating your collections allows you to sign up, collect from, and administer vastly more customers. It reduces your manual processes and errors, and improves customer service. It removes the hassle of chasing late payers, and reduces the number of payments that need to be collected by phone, check, or other means.

Smaller fees

Including Direct Debit within your payment offering can reduce churn and increase collected revenue. For example, our customers benefited from a churn of just 2% in 2017 and successfully re-presented payment to 20% by using Direct Debit for their recurring revenue.

Excellent. So how do I set up Direct Debit for my business?

In order to be able to collect payments via Direct Debit, you will need to be sponsored by your bank. If you fulfil the bank’s criteria, you will be granted a license, called a Service User Number (SUN). Your bank will ask you about the following:

  • Your business’ U.K. sterling bank account
  • Your business’ financial standing—typically, a turnover in excess of £1 million
  • Quality of your administrative control
  • Contractual capacity
  • An indemnity in favor of all the banks participating in the Direct Debit scheme

I am eligible for a SUN. Can I use a third party to automate the payment collections?

Direct Debit can be a complex process. Whether you are processing a thousand or hundreds of thousands of recurring payments per month, you can cooperate with an experienced third party that offers intuitive software to help you stay on top of your transactions and the complex Direct Debit rules to ensure compliance. You can use a third party’s system to manage your payers, automate customer communications, and increase the efficiency of your reporting.

What are the advantages of obtaining your own SUN?

If you fulfil your bank’s criteria, obtaining your own SUN is always the more favourable option as it comes with multiple advantages. It allows you to have more control over your cash flow, with the funds you collect reaching your account on the same day as your collection day. You will have more flexibility on the frequency of the Direct Debits, and no limits on your collection amounts.

You will also have more control over branding—if you have your own SUN, your company’s name will appear on your customers’ bank statements. If customers see your company name, rather than an unknown payment processing company name, on their bank statements, they will be less likely to cancel their Direct Debits. Some payment processors do not provide this facility; check whether they do before you contract with them. Having your own SUN also comes with increased security, as the money you collect is your business’ money and does not go through a shared account with multiple other businesses that have nothing to do with you.

Can I use Direct Debit if I can’t get a SUN?

Yes! You will have to process your Direct Debits through an authorized and regulated third party. This solution is usually called a Facilities Managed (FM) service and is suitable for organisations of all sizes. A list of accredited FM providers can be found through the Bacs website.

It is worth noting that not all providers are the same. That is why it is imperative that you ask the right questions. What kind of portal does the provider offer? What is the user experience like? Is it easy to manage payers? Is the service branded to your organisation, or will the payment provider’s trading name appear on your customers’ bank statements? Will your money be held in a separate account or together with other clients’ funds?

Having your own SUN is something you should be aiming for, especially if your business is growing and can reach the £1 million turnover mark in the future. When you are shopping for a Direct Debit service provider, you should ask about their own SUN offering and how their switching process (from FM to own SUN) works, as some providers may discourage you from obtaining your own SUN, or they simply may not offer that service.

Take advantage of the latest tech and automate now!

Don’t waste your time on lengthy processes. In today’s fast-paced world, automation and that adoption of the latest technology is key to increasing the efficiency and productivity of your business.

The BlueSnap partnership with SmartDebit combines years’ of experience, industry-leading support and the latest financial technology. Through our partnership, merchants can benefit from an all-in-one payment platform that now includes the popular U.K. payment method, Direct Debit.

 

Terry Jones is the CEO at SmartDebit, the U.K.’s leading Direct Debit service provider. SmartDebit makes it simple to access advanced payment systems, reduce customer churn, and improve financial reporting.

 

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