How I Setup a Direct Debit for my Small Business – The Little-Known Steps

I hate paying bills. I had a hard time paying my bills on time when I was a student. Now that I run my own business and have to pay lots of different bills at the same time, it is even more challenging. I wanted to build a small business direct debit set up for all of my bills to make things easier, so they get paid automatically.

Should it be easy right?

Well… no.

The process of setting up a direct debit is not as straightforward as you think. It can be pretty confusing, especially if you’re not familiar with the process. You would expect only two parties involved – me (the customer) and the biller (the company I owe money to). However, two more parties are actually involved: the merchant bank and the collecting bank.

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Are you a small business that wants to take advantage of direct debit but is unsure where to start?

In this article, I will cover how we set up our direct debit system for our small business and what I learned in the process.

Why use Direct Debit?

For years, we used PayPal to take payments from customers on our website and by email invoice. However, when we started growing, we looked for a more efficient way to accept payments and moved to GoCardless. They are a UK based company that offer direct debit collection as well as other payment services.

What’s great about using Direct Debit is that you don’t have to manually send out invoices or follow up when they are late. In addition, once your customer has authorized, you can set up recurring payments, and they will automatically be taken from the bank account on the day you specify.

It’s important to note that if you are taking payments in the UK there is a 14-day cooling-off period after your customer has signed up which means they can cancel the direct debit within that time frame without penalty. This is why it’s important to build trust with your customer before asking them for monthly payments by direct debit.

How do Direct Debits work?

Direct debits are a tried and tested method of processing regular payments from customers. They are typically used by service providers such as utility companies, gyms or subscription services, but can also be used for one-off payment collections if you wish to avoid having to chase after payments yourself.

The process works as follows:

The customer authorizes the business to take money from their account on a specified date (or at intervals) via a mandate form (often called the ‘direct debit instruction’). The customer provides their bank account details for the funds to be collected from, including their sort code and account number.

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Get a merchant account

A merchant account is an account that allows you to accept payments from credit or debit cards. You’ll need to apply to a merchant services provider (MSP) to get a merchant account. You can find these online, but in my experience, it’s best to use a broker who will compare the best deals for you (like this one).

Make sure you tell the MSP you want to take direct debits so that they give you the right kind of merchant account.

Choose a provider

A direct debit provider acts as an intermediary between a customer’s bank account and yours, so you don’t have to exchange bank details with clients. They’ll make sure that funds are transferred securely, using bank-level encryption, and will pay any failed transactions back into your account if they go astray.

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Choose whether to offer one-off or recurring payments

One-off or recurring payments? Which is best for your business? It all depends on what you’re selling — some products are better suited to one-time payments (such as courses or events), whereas subscriptions often require regular direct debits. Next time you’re buying something online, think about which option you’d prefer.


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