As a business owner, you’re no doubt familiar with the importance of managing your company finances; from allocating a budget for operational expenses, to collecting payments from your clients. All too often businesses struggle with the latter, allowing their customers to control the payment cycle, significantly impacting their cashflow.
If your business finds itself in this scenario, understanding the difference between direct debit and direct deposit can help get you on track to improving your cashflow. In this article, we’ll provide a breakdown of direct deposit and direct debit, with the goal of helping you to determine which one is a better fit for your business.
The Differences Between Direct Deposit and Direct Debit
Direct deposit and direct debit are two of the most popular payment options for businesses in Australia. While they may sound rather similar, there are marked differences between direct deposit and direct debit.
Direct deposit involves the electronic transfer of funds from your client’s bank account to your business bank account. This transfer is initiated by the payer (client).
Unlike direct deposit, direct debit does not require any manual action from the payer — the pre-approved amount is instead automatically withdrawn from your client’s bank account and delivered into your business’s account. This ensures that your payment arrives when it’s supposed to - eliminating late payments.
What are the pros of using direct deposit?
- Adaptable for varied payment amounts: Direct deposit allows for changes to payment amounts in the event of fluctuations in expenses or services rendered, making it a highly flexible option.
- Little to no cost to the business: As direct deposit relies on the customer to initiate payments, businesses are not required to pay for a payment gateway or solution.
What are the cons of using direct deposit?
- Payer initiated: Your customers have to manually approve and send the payment to your business leading to the possibility of late payments.
- Bank processing times: Even when approved by your client, the payments still must be processed by the bank, which could be affected by delays and cause issues with cash flow.
What are the pros of using direct debit?
- Automated recurring payments: With direct debit, your customers payments will always make their way to you as it requires your customers consent prior to billing making it an easy way to manage payments.
- Reduced late payments: Consistent on-time payments \results in improved cash flow for your business, allowing you to plan reliably.
What are the cons of using direct debit?
- Loss of payer control: Some customers might not be comfortable with a recurring payment method that is automatically deducted.
- Inflexibility for ad-hoc payments: Direct debit works best with fixed recurring amounts, meaning that any variation in payments would have to be charged separately by your business.
The Right Payment Option for Your Business
Offering multiple payment methods is a great way to attract customers of all kinds – however, it’s important to remember the key differences between direct debit and traditional payment methods like direct deposit. Both direct debit and direct deposit have their own unique advantages and specific use cases, which make them beneficial to specific businesses.
For businesses that have an ongoing relationship with their customers, payments will need to be made regularly. If you are relying on customers to make payments on a regular basis, this is where late payments can be a problem and cause cash flow problems. For this reason, businesses which rely on regular payments are significantly better off when using direct debit to process payments.
On the other hand, businesses that don’t have an ongoing relationship with their customers will not receive the same benefit from direct debit. As the payments only happen once, using a payment gateway, checkout page or direct deposit will be most effective in this scenario.
In short, it’s better to offer your customers options on how they would prefer to pay. More choice equals more freedom – which translates into happier customers.
Choose Direct Debit With Ezypay
At Ezypay, we understand the challenges that business owners face when it comes to getting what they’re due. As Australia’s leading solution for subscriptions and direct debit billing, we’ve helped countless businesses find the right solution for their payment needs.
Whether you need a solution to collect recurring payments, one-off or ad-hoc payments, or both, we have a seamless solution to help your business.
Reach out to our friendly team today and discover an easy way to collect recurring customer payments for your business!