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Optional or mandatory
I'd be interested on what proportion of firms have made direct debits mandatory for monthly payment fans and how many still class them as "optional". We are still in the "optional" camp as all out clients are excellent payers, however as we expand I think we might need to change our approach.
Mandatory
I'd be interested on what proportion of firms have made direct debits mandatory for monthly payment fans and how many still class them as "optional". We are still in the "optional" camp as all out clients are excellent payers, however as we expand I think we might need to change our approach.
It's mandatory for us and we use Go Cardless - love it!!
Article
The topic has been on our To-Do list for some time, and was triggered on this occasion by the post from Carnmores about HMRC's time to pay direct debit regime.
When Richard looked back at all the previous discussions around this point, GoCardless was mentioned several times by AccountingWEB users. It so happened that when judging the Practice Excellence Awards I noticed that many of the entrants had shifted to monthly direct debits and several specfically mentioned GoCardless. As often happens when you are on alert about something, things come at you from all directions. While Richard was researching the article I heard the GoCardless MD talk and thought he had a few interesting things to say, so I shared them with Richard.
You will notice that we did mention other third-party direct debit service providers at the start of the story, but the evidence we've seen at AccountingWEB is that GoCardless is making the most headway within our market at the moment. So though the piece does make several references to GoCardless, it is intended to reflect the situation as we found it.
Don't let the bank put you off
Go Cardless and other 3rd party providers obviously make setting up direct debits easier, but I would recommend pursuing your own bank first. We take direct debits directly with our own bank and it works fine - yes, it took some time to set up, and I seem to recall getting the layout of our DD mandate seemed to be a major issue, despite it being the template provided by the bank! So don't think you HAVE to use a 3rd party to be able to take DDs.
@nigel
Go Cardless and other 3rd party providers obviously make setting up direct debits easier, but I would recommend pursuing your own bank first. We take direct debits directly with our own bank and it works fine - yes, it took some time to set up, and I seem to recall getting the layout of our DD mandate seemed to be a major issue, despite it being the template provided by the bank! So don't think you HAVE to use a 3rd party to be able to take DDs.
What is the advantage of doing this yourself? GoCardless charge 1%, with a £2 cap per transaction. When I last looked at what the banks charge small businesses, it was a higher charge unless they have a huge volume of direct debit transactions on a very regular basis. You can set up a GoCardless account in under five minutes and set up future direct debits in seconds and you need not have any technical knowledge. Unless your bank charges you less than this (and the volume of transactions makes the cumulative saving worthwhile), why would anyone bother to learn how to operate yet another system, especially when, as you say, it takes time to set up and it's complicated to understand the templates?
As they say on the BBC, other DD facilitators are available (as noted in Richard's article), but I would strongly recommend using one of these modern DD service providers instead of the banks' own complicated systems which are very time-consuming.
Go Cardless
We started using Go cardless around a year ago. One of my better business decisions and would recommend it !
Direct Debits and Indemnity from a bankers perspective
A client can recall any payment made even after the date debited to their account by simply claiming on the Direct Debit Indemnity from their bank. Say you have a client dispute on fees and the client simply advises his bank that their payments were taken in error and are in dispute. The client will be automatically refunded them by his bank and these payments will be debited to your firm account. Standing Orders do not have this weakness.
Indemnities
I found this article very informative and think I should investigate DD further. However I am concerned about this indemnity thing. Have DD users here any experience of this being an issue I practice?
We had one client who recalled a direct debit payment because there were two identical amounts collected on the same date. She presumed it was an error and (I believe genuinely) forgot that an earlier one bounced to to lack of funds, and we had agreed to double the next one. Easily sorted but it does remind me of one issue about the direct debit system, which I presume is generally applied and not just London and Zurich who we use.
Until a couple of years ago, when a direct debit failed - happens occasionally just as cheques and standing orders can go unpaid - future collections were unaffected, i.e. the mandate would remain active. All we had to worry about was collecting the missed payment. Nowadays, future collections are automatically suspended unless we log in and restart them, giving a reason for doing so. (Normally, "The client has now resolved their cashflow issues"). There is then a 24 hour delay before we can add any additional collection(s) to deal with the backlog. Just a bit of admin, but a pain nontheless.
Without the indemnity in favour of the client/customer the system would I believe be unworkable. Leave aside the impeccable ethics of the accounting profession, I wouldn't sign a DD mandate that let a supplier - say BT or Virgin - collect any amount they chose and hold onto the funds until any dispute was resolved. The system can only work if the client knows they can recall any funds they believe were taken in error, and is no less secure than them cancelling standing order mandates or cheques.
Firms such as London and Zurich (I'm sure they aren't the only one) have a scheme that guarantees collection but I've never looked into it and have no idea how it works or what it costs.
GoCardless is simply brilliant. We collect £15,000 a month via GoCardless in total and have never had a problem.
All reconciled and paid off automatically in Xero. This would take our book-keeper a week to do with Standing Orders!!!
Our experience is highly positive
We have used direct debits for our regular collections (>80% of clients) since we started in 2007. The service provider we use id London and Zurich (www.landz.co.uk). Really straightforward system to use. We have regular collections on 1st and 15th of each month, and get irritated when those fall on a weekend or public holiday - I don't know why bank computers get time off so my cash-flow is pushed back!
The advantages over standing orders are obvious - when fees get revised it's a couple of minutes to update the DD system. Most noticeable when the VAT rates changed several times in a shortish period. It took a couple of hours each time compared with the hassle of getting all the clients to change their standing orders. It;s also quick to add in additional collections for one-off work carried out for clients.
I have a slightly 'picky' dislike of Go Cardless. One of our suppliers uses it and the description on the bank statement looks a bit unprofessional in my opinion - GO CARDLESS LIMITED followed by an abbreviation of the supplier's name and an alphanumeric code stuck on the end. Ours just has our name as the description.
We don't offer it as an option - it's the way we collect fees for regular clients. We had literally one client who objected and he offered to pay annual in advance instead, so that was totally acceptable:-) The majority don't just accept it - they positively prefer it.
Business to Business Direct Debit is on the increase, as more organisations understand how to manage the risks. I would say the vendors picked out in this article tend to be collecting on behalf of your organisation rather than directly into your own bank account. Owning your Bacs Service User Number (SUN) and having debits paid directly into your own account is the quickest and most efficient way of getting your cash using DD. With your own SUN you can submit directly via software or cloud solutions or via a Bureau. The hurdles involved in the process of getting a SUN from your bank for DD can be overplayed somewhat, so worth investigating this option too.
Since I started...
I've been using the Go Cardless direct debit since I started my practice just under 2 years ago. Regardless of the DD supplier, the DD system has been great for me. All my Ltd companies are on a DD which is discussed at the initial meeting and it is made clear that is the way I work. The only exception is my Mum's company - I'd like to think she would settle her bill!. About half of my sole trader clients are on the DD, and very few tax return clients, but they are the cherry on top of my current fee income and perceived as a lower risk.
My view when I started out was that I'd rather pay the Go Cardless fees than spend time setting up STO's or chasing money.
If anyone would like £50 of free fees for Go Cardless let me know and I'll send you a link :)
Clients
The last Accountants i worked for had DD's set up for most Limited Companies, most clients preferred this approach, I think its a good system.