What is a Direct Debit and what are the benefits of Direct Debit?

Bacs, the governing body behind the Direct Debit Scheme, announced that this summer it processed its 100 billionth transaction since it was first established in 1968.  Part of its success has been down to the growth of its Direct Debit Scheme which has seen massive uptake since the first Direct Debit was processed in 1970.  Fast forward 40+ years and in 2012 more than 3.4 billion Direct Debit payments were processed.  But why is Direct Debit so popular?  Well, lets start with the question:  “What is a Direct Debit” and answer it with a definition of Direct Debit:

“A Direct Debit is an instruction from a customer to their bank or building society authorising an organisation to collect varying amounts from their account. This can be used to ensure regular, safe and efficient payments of anything from household bills to charitable donations”.

As this definition suggests, one of the benefits of Direct Debits for both collecting organisations and their customers is the fact that once the customer gives authorisation, the collecting organisation can manage the process.  The collecting organisation needs to inform the customer in advance about the Direct Debit payment amount and timing, but once done, they have the ability to collect varying amounts and on varying collection dates as required.  This is far quicker and much easier than waiting for the customer to send payments by cheque or cash – or to remember to go online and make a payment.   The organisation retains control and can plan when funds arrive in their account and the customer has the peace of mind of knowing that they won’t miss a payment.

The flexibility in amount and collection date (compared to a fixed amount and date with a standing order) allows Direct Debits to be used for payment of a range of goods and services.  Bacs estimate that the average household has at least 8 Direct Debits set up – for payments including memberships, utilities, shopping, donations and insurance.  It is, as this suggests, a preferred payment method and Bacs  research shows that 70% of consumers feel positively about Direct Debit and why wouldn’t they.  Many organisations offer incentives for individuals to pay by Direct Debit and an impressive amount of savings can be made by doing so.  Plus, the transaction is the only payment method covered by a no-quibble guarantee that ensures a full and immediate refund should a payment be taken in error.  Not quite the case with other payment methods such as online transfers and credit cards.

For customers it is the Direct Debit Guarantee and the convenience that is most appreciated.  For collecting organisations, the control is attractive but so is the cost-saving, with Direct Debit often a significantly cheaper way to collect money (vs cheque or cash).  Whatever the most persuasive benefit however, it is clear that Direct Debit is here to stay and is in fact a growing payment option.

To learn more about the benefits of Direct Debit for your organisation, please contact us for an informal chat.