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Direct debits: How to streamline payments

30th Jul 2015
Editor AccountingWEB
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If you’re struggling to extract payment from a client or are looking for a more streamlined option, perhaps it’s time to consider a more direct approach – a direct debit approach. Richard Hattersley looks at the underlying processes.

Direct debit payments are back in the news this week due to HMRC’s decision to switch time to pay arrangements to direct debits from 4 August. With continuing concerns about the advent of direct recovery of debts (DRD), this isn’t a very popular option with the profession. But when it comes to their own accounts receivable, practitioners are more positive about the process.

The topic has cropped up several times on AccountingWEB’s Any Answers page, particularly with the growing trend to switch client fees to regular monthly direct debits. According to the practice development experts, this is a sure fire way to reduce lockup; feedback from entrants to our Practice Excellence Awards and Any Answers comments support the view that automated payments are beneficial for the practice.

Regular monthly fee payments boost firms’ cashflow and reduce the time spent chasing after unreliable and forgetful clients.

Historically, setting up direct debit mechanisms was very bureaucratic and expensive, Over the last two years members have suggested third party companies such as Fastpay, and EazyCollect.

AccountingWEB member Steve Holloway said of the former: “They do a flat rate collection fee or per transaction if you prefer. Everything has worked perfectly with them since I started in April. Moving to DD was, I would say, the best thing I have done in the 10 years I have been out on my own. I can concentrate on my job rather than checking my bank account every morning.”

But in more recent conversations on the site a new cloud-based challenger has emerged: GoCardless . “I’ve been using it for several years now, especially as it integrates with all three cloud accounting systems I use.  If no integration then you can login online and easily set up direct debit arrangements with clients.  It now works the other way and several suppliers use it,” commented Paul Scholes.

One of the attractions of GoCardless is its usability, according to Accountancy Market: “I set my clients to a payment plan at the start of the engagement and the monthly payments are then taken automatically each month without me needing to do anything. As I set all my clients to pay me on the 1st of the month, all my client payments are then transferred to my bank account in one nice lump sum a few days later.”

At the Three times more event in London last week GoCardless head of sales George Britton described how the payment landscape was changing with the arrival of on-demand services like Netflix and Spotify delivered over the internet: “Cards are not suited to subscription-based services,” he said. “They expire on a regular basis and lead to a 10-20% failure rate. The admin if you’re dealing with 1,000-2,000 customers may be unmanageable, as you have to chase 100-200 customers.”

According to Britton, banks frequently make life difficult for smaller organisations applying for direct debit facilities by imposing a compliance regime based around a mountain of paper forms.

GoCardless acts as a gateway for its subscribers, he explained: “We aggregate volume direct debit payments and process them in batches.” The service provider presents subscribers with a basic form for mandating debits, and will then process the resulting payments and report back on them.

GoCardless can be operated from a smartphone, and as Paul Scholes pointed out, integration with all the leading cloud accounting systems means that GoCardless can automatically allocate fees to accounts and reconcile them to bank accounts as the payments are made.

Rather than charging 2% or more, plus a transaction charge, its fee is 1% of the value paid. The company’s sign-ups are doubling every month in the UK, Britton said.

GoCardless might alleviate some of the stress involved in collecting money, but may not be an option for all your clients. ShirleyM commented: “If you meet all your clients, you just get them to sign a (paper based) direct debit mandate, and everything else is done online by us. It’s a little more expensive than GoCardless, but much easier for clients and you can still get direct debits from clients who aren't tech savvy, or dislike online banking.”

Direct debits are not free from risks and hassle. Once the payee has received their mandate, they can take the amounts they want out of an account. If there are discrepancies or disputes, you face a major struggle getting the sum back after it’s been paid.

While the background mechanics are slightly different, standing orders can achieve the same end as direct debits, but can pose problems if you want to change the date you receive your fees, or transfer them to a new bank account. Both changes would require you to get clients to amend their standing orders.

HMRC’s latest move on time to pay arrangements is causing concern, but is not far beyond what many accountants already do when setting up direct debits on their clients’ behalf to settle PAYE and VAT liabilities.

Euan MacLennan commented: “We set up the monthly/quarterly DDs for most of our payroll clients when we run their payrolls.  Yes - you have to log on as the client - but the majority of our clients didn't previously have a Government Gateway account, so it was we who set up the client's logon in the first place.”

Nevertheless, the tax department is clearly aware of some of the misgivings about direct debits raised on Any Answers and signalled signs of flexibility in a blog post earlier this month: “We recognise that there will be exceptional circumstances where a customer is unable to set up a direct debit, perhaps because their bank account will not allow it. In such cases payment by other methods may be agreed.”

Direct debits are in the spotlight at the moment, but the payments scene is continuing to change rapidly, with innovations such as PayPal, mobile payments, virtual currencies such as Bitcoin and internet banking all vying for market share.

Accountants by nature are a prudent bunch, so aside from the quirky eBay marketing strategy where one firm collects £10 for an initial consultation (via PayPal if the client wishes), it may take a while for these changes to enter common use within the profession.

Direct debit has the advantage of being far enough behind the bleeding edge to be reliable - generally the system works and brings the convenience of dependable, recurring online payments to both supplier and customer.  Until the next wave of payment innovation takes over, the feedback from AccountingWEB members is that direct debits are a good way to streamline this aspect of your practice. 


Replies (16)

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By QuickAccounts
30th Jul 2015 21:11

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.

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Replying to loanscouter:
By Stewie Griffin
31st Jul 2015 13:56


QuickAccounts wrote:

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!!



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By JCresswellTax
31st Jul 2015 09:15

Is this

An article or a plug for go cardless?

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John Stokdyk, AccountingWEB head of insight
By John Stokdyk
31st Jul 2015 09:30


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.

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By JCresswellTax
31st Jul 2015 09:37

Thanks for clarifying John


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Nigel Harris
By Nigel Harris
31st Jul 2015 11:30

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.

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Replying to Bob Loblaw:
By Charlie Carne
10th Aug 2015 20:06


nigel wrote:

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.

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By refs8
31st Jul 2015 12:15

Go Cardless

We started using Go cardless around a year ago. One of my better business decisions and would recommend it !

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By enanen
31st Jul 2015 12:46

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.

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Replying to SXGuy:
By miketombs
02nd Aug 2015 14:05


jon_griffey wrote:

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.


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By Summerjosh
31st Jul 2015 13:20

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!!!

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By miketombs
31st Jul 2015 13:27

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.

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By Richard Ransom
31st Jul 2015 14:11

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.

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By sjfbarrett
31st Jul 2015 15:24

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  :) 

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By AndrewV12
03rd Aug 2015 11:34


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.  

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