The

complete guide

to

Direct Debit
for
accountants

1
 Contents

3-4 Introduction
What is Direct Debit
What is Direct Debit used for?
Why Direct Debit?

5-6 Alternatives to Direct Debit

Options for accessing

7-8
Direct Debit

9-12 Getting started

How to set up Direct Debit
Integrating Direct Debit into
your billing workflow
Moving clients over to Direct Debit
Taking Direct Debit payments

13 Next steps
Measuring success for your firm
Advising your clients on Direct Debit
 Introduction
What is Direct Debit
What is Direct Debit used for?
Why Direct Debit?

What is Direct Debit? • Payments can then be collected as soon as they

Direct Debit in the UK was devised by a Unilever
executive in the 1960s, as an automated way to
collect recurring payments from ice cream vendors,
without having to ask permission each time.
are due, without further action from your customer.
• Your customer must be notified before each
payment is taken, in accordance with Direct Debit
scheme rules.

Today around 75% of all recurring payments made • Payment typically takes 3-4 working days to clear.
by volume in the UK are made by Direct Debit
(Source: Payments UK).
Customer Bank
This guide is designed to walk you through
everything that Direct Debit can do to help your
firm’s success.

We’ll show how other accountants have made

Direct Debit an important part of their billing
workflow. We’ll also explain how you can encourage
your clients to pay you by Direct Debit, and how you
can advise them on using it to improve cash flow in
their own businesses. Mandate Pull funds
(gives permission) (with notifications)
Let’s begin with a quick explanation of how
Direct Debit works. A Direct Debit payment is
an instruction from your customer to their bank,
authorising you as the merchant to collect
recurring payments from their account,
whenever they are due. Merchant Bank

• Your customer completes a Direct Debit mandate

(also known as a Direct Debit form), online or in
paper, authorising you to take payments from
their account.

3
What is Direct Debit used for? Get paid on time

Although Direct Debit can be used for most • Cone Accounting reports zero debtor days since
payments, it is most often used to make the adopting GoCardless for Xero
following kinds of payments:
• VIA (a Skype for business platform), halved its
• Invoice payments for variable amounts. debtor days using GoCardless for Sage50
For example, you might bill your clients different
• SRK Accounting reduced monthly debt by
amounts each month. You can use Direct Debit
£50,000 with GoCardless for Xero
to collect payments against regular invoices,
for differing amounts. You can also use the same • Amaranth Football club reduced outstanding
Direct Debit mandate to collect one-off fees for debts in member fees by 95% to just £100 with
ad hoc work. GoCardless for Sage50
• Fixed subscriptions. Direct Debit is the easiest way
to collect recurring payments against a payment Reduce manual admin
plan, such as a subscription.
Before the advent of online Direct Debit, the
• Paying on account. Some firms offer Direct Debit average working day of an accountancy firm
as an option for clients to spread out their costs. included a lot of paperwork, from admin activities
such as setting up, processing and manually
Direct Debit is less suitable for:
reconciling payments, along with chasing debtors.
• Immediate payment: for example in e-commerce,
Now, using automated Direct Debit as part of an
where you may need payment before dispatching
integrated setup, firms can create a streamlined
goods.
digital workflow where cash collection and
• High value payments: for example for payments reconciliation happen automatically.
over £5000 - due to the possibility of ‘chargebacks’
With Direct Debit through GoCardless:
happening under the Direct Debit Guarantee.
• Kinder Pocock saved 2 days per month
• Payments from credit accounts: Direct Debit
in payments-related admin
payments must be taken from current accounts.
• Bristol-based accountants FD Works saved
2 hours a week in chasing late payments
Why Direct Debit?
• SRK Accounting saved 2 days per month
For accountants, using Direct Debit offers a number
in manual admin
of benefits, most importantly the ability to reduce
late payments and debtor days, improve cash flow, • The Wow Company saved 4 days per month
and cut down on tedious admin such as manually in chasing bills and manual reconciliation
reconciling payments and chasing debtors. It can
also help client relationships by removing the need
to have awkward conversations about money owed.

“Before we moved to GoCardless, cash flow could be quite up

and down, depending on who’d paid their bill and how big the
hole was in our income for the month. Now we know exactly
what’s coming down the cash pipeline each month – making
it so much easier to plan internal finances and spending.”
Barbara Gaunt of FD Works

4
 Alternatives to
Direct Debit
While Direct Debit is a useful option in many cases,
there may be some instances where you need an
alternative payment method, or just wish to offer
clients a wider range of options.
In this section, we discuss alternatives to Direct
Debit, and provide a useful comparison chart so
you can make an informed decision. The most
commonly used recurring payment methods are:
• Credit or debit card
• PayPal
• Standing order
• Bank transfer
Recurring credit or debit card payments (also
known as Continuous Payment Authority or CPA)
This is a regular payment from the client’s card
to your firm’s bank account, through credit card
networks. PayPal also uses the same method.
• CPA payments are fast (a 24 hour turnaround time
is common) and offer a lot of flexibility to charge
fixed or varying amounts.
• Costs are high (around 3% + 20p per payment).
• Payment failure rates are typically greater than
5% due to cancelled, lost and expired cards, and
customers hitting spending limits.
“With standing orders, I would sign an agreement with a client,
but end up chasing payments regularly… With Direct Debit
we know exactly what money is coming in and how to plan
expenditure, which is what I recommend to all of my clients.”
Ben Nacca, Founder, Cone Accounting
5
Standing orders and manual bank transfers
These methods put the client in control of payment.
• Although standing orders offer automatic
recurring payment, you have to rely on the
client to set up the payment instruction.
• Payment is fast and fees are low, but flexibility is
limited, as you can only take fixed amounts each
month and you can’t change your prices without
setting up a new standing order.
• Manual bank transfers are also fast and free,
but just like with cash, you risk clients delaying
or forgetting to pay, causing the same late
payment problems all over again.
Direct Debit
Direct Debit puts you in full control of payments,
without the high fees and failure rates of cards.
• You choose the amount and date of payments,
you can charge fixed or varying amounts and
change amounts or payment dates without
further authorisation from the client.
• Fees vary by provider but are generally low,
around 20-40p (or 1%) per transaction.
For a full breakdown of the different payment methods, plus their benefits
and disadvantages, see the below comparison chart
Recurring card payments
Set up You’re in control. You control
set up, amount and date of
payments. You may have to go
through added hassle of getting
a merchant account.
Speed Fast. Varies by provider, but
providers like PayPal offer
24-hour turnaround - even for
initial payments. Best used if
you require next-day payment.
Flexibility High. You can charge fixed or
varying amounts, and you don’t
have to specify a date when
you’re going to take a payment.
Cost High. Around 3% + 20p per
payment and monthly fee for
merchant account. Likely to be
admin costs involved in chasing
customers to update expired
card details.
Reliability Medium. Payment failure rates
and vary, but tend to be greater
customer than 5%, due to cancelled and
retention expired cards or customers hitting
spending limits.
Customer Medium. Continuous Payment
protection Authorities enable customers to
apply for a refund when using
credit cards, but there are greater
limitations for customers than
when using Direct Debit.
Direct Debit
You’re in control. You control
set up, amount and date
of payments. You can use
GoCardless as your merchant
account.
Medium. Initial payments through
Direct Debit can take six working
days while the funds clear.
Subsequent payments clear
in four working days.
Medium-high. Charge fixed or
varying amounts and change
amount or date of payment
without customer’s authorisation.
You need to give advance notice
of payments (Direct Debit
providers can manage this
for you).
Low. Varies by provider but
expect to pay 20 - 40p or 1%
per transaction, with no setup
fees or hidden charges.
High. Since Direct Debit avoids
card networks, payment failure
rates are typically low, at less
than 1%. Providers like
GoCardless only charge you
for successful transactions.
High. The UK Direct Debit
Guarantee offers a high level of
protection for customers, allowing
them to apply for an immediate
refund from your bank if they
believe a payment has been
mistakenly taken, with no time
limit attached. For most businesses
however, the risk of chargebacks
is low.
6
Standing orders
Customer is in control. Customer
controls set up and you’re
dependent on them. Unfeasible
if you have > 25 customers.
Fast. With Faster Payments,
standing orders are usually
processed and received on
the same day they’re sent.
Low. You can only take fixed
amounts at regular intervals.
Any changes have to be
authorised by the customer.
Low. Possibility of a small fee
taken by your bank, but otherwise
free. Likely to be admin overheads
associated with managing
standing orders.
Medium. Avoids card networks, so
payment failure rates of less than
1%. But you won’t be notified if
a payment fails (e.g. if there are
insufficient funds), so you’ll have
to check accounts manually and
chase up customers.
Low. No customer protection once
payments are made, which gives
merchants greater protection.
 Options for accessing
Direct Debit

Your firm can choose different routes to access the
Direct Debit system. In this section, we explain each
one so you can decide which fits your business best.
Direct access: The bank
Your firm can access the Direct Debit system
directly through your bank. This is best for larger
businesses signing up clients with paper Direct Debit
mandate forms. If your firm meets certain criteria,
your bank will issue a Service User Number (SUN),
which allows your firm to manage Direct Debit
payments in-house.
What do I need to do?
Requirements for accessing Direct Debit differ
slightly by bank, but in general your firm will need to
do the following:
• Get your own SUN
• Put down a £100k bond with your bank to cover
their risk
• Invest around £15k in software and staff training
• Assign 1-3 staff to manage the system

• Invest 3-6 months in the setup process

Advantages of direct access
What’s the first step?
• Lowest possible cost per Direct Debit payment.
You’ll pay a small fee per payment, which should If you want to go for the direct access method, you’ll
decrease with volume. need a sponsor bank and a Service User Number.
For details on getting a SUN please see our guide.
• Full control of payments. You decide when and
how you submit payment requests.

• Only your business name will appear on your

clients’ bank statements

7
Indirect access: The bureau Why use GoCardless?

If direct access isn’t right for your business, there’s
another way to access Direct Debit: using a Direct
Debit bureau. Bureaus are third party providers that
can act as your merchant account, dealing with the
banks on your behalf.
Advantages of indirect access
Compared to direct access, bureaus are quicker
to sign up with and you won’t need to meet the
bond criteria set out by banks. Bureaus are
great if your firm still wants to sign up clients with
paper Direct Debit forms. While some traditional
bureaus do offer paperless Direct Debit, this may
be more expensive.
Typical bureau costs and requirements include
the following:
• £400 - £800 in setup fees
• 40p per payment plus £1.40 to set up
each new client
• 4-8 weeks set up time
• Manually reconcile reports back into your systems
GoCardless automates and simplifies the
payment process.
• Reduced admin. Collect recurring and one-
off payments automatically, or at the click
of a button. Avoid tedious tasks like manual
reconciliation and chasing debtors
• Integrated with the tools you use. GoCardless
has free integrations with leading accountancy
apps, including Sage50, Xero, QuickBooks,
Zoho, KashFlow and FreeAgent, meaning
you can manage your payments from within
those systems. Better yet, your payments will
automatically be reconciled with your accounts
which reduces your admin.
• Simple, low pricing. GoCardless charges just 1%
per transaction, capped at £2 (with a minimum
charge of 20p), with no set up fees and no hidden
costs. Scale pricing is also available.
Set up online and start taking payments in
minutes. Unlike the banks, GoCardless has no
special requirements for using Direct Debit.
Simply sign up for free online and start collecting
payments immediately.

Indirect access: GoCardless

If you’re looking to cut down on manual admin

and avoid the set-up fees associated with
traditional Direct Debit bureaus, then accessing
Direct Debit through GoCardless might be the
right option for you.

GoCardless offers your firm the ability to take

Direct Debit payments online, track and
automatically reconcile them through one simple
portal - or app within your accounting software.
There’s no need for paper mandates; clients can
easily set up Direct Debit payments online.

“Making sure the new business is 100% cloud has been my

biggest achievement. GoCardless has allowed me to grow
further without having to spend lots of money on hiring staff.
Now I can set up and make payments immediately.”
Alex Falcon Huerta, founder of Soaring Falcon Accountancy

8
 Getting started How to set up Direct Debit
Integrating Direct Debit into your billing workflow
Moving clients over to Direct Debit
Taking Direct Debit payments

How to set up Direct Debit

Getting started with Direct Debit is straightforward, Day 4
although the timeline and steps may vary
depending on your chosen provider. With
4. Your customer is notified before every
GoCardless you can get set up and start taking
payment is collected. Now that a Direct
payments immediately. Here’s an example of
Debit mandate is in place with your
how it works.
customer, GoCardless automatically
collects the funds on the set payment
dates, notifying your customer in advance.

Day 1

1. Choose how you want to use Day 6

GoCardless. Set up your Gocardless
account in minutes through our
5. Payment clears in your account - minus
website or through your online
the GoCardless fee. If you already have
accounting software. It’s free to
a mandate in place, a new payment takes
sign up and there are no setup
4 working days to clear completely in your
costs or contracts.
account. If you don’t, your the first payment
will be linked to a new mandate set-up and
2. Add customers and invite them will take 6 working days to clear.
to pay through GoCardless.
Invite customers who you invoice
regularly to complete a simple,
one-time Direct Debit form.

3. Schedule payments, whenever FROM NOW ON...

you need to. Create a payment,
selecting the date and amount.
You can create one-off or multiple
payments for each customer - at
fixed or variable amounts.
6. Manage all your payments online.
View and manage all of your transactions
online. If you’re using GoCardless within
your billing software, you can also
automatically reconcile payments
with your accounts.

9
Integrating Direct Debit into
your billing workflow
You probably already have a tried and tested
workflow for collecting payment against invoices.
For maximum convenience, it’s easy to integrate
online Direct Debit into your existing processes, so
your team doesn’t have to learn a whole new way
of working.
GoCardless integrates with all the major billing
and accounting software, including Xero, Sage,
KashFlow and FreeAgent.
Here’s what a typical workflow looks like.
1. Set up a mandate with the client engagement
letter, or with the first piece of work
2. Send invoices regularly for retainers and/or
work completed (You can automate collection
in Xero, with an additional option for split
invoicing in Sage)
3. Auto reconciliation....no need to lift a finger!
4. Real time notifications for catching any
problems – so you can reach out to your
client and help them solve the problem
5. Billing for any ad-hoc work is as easy
as raising an invoice
6. When prices change, simply change
your invoice value to match

The Direct Debit timeline in Xero

Mandate set up
Mandate
Invite customers from GoCardless for Xero

Create invoice as normal in Xero

Invoice created
Set due date (and recurrence if applicable)

3 days before due date Customer notified

Due date Customer charged

Income deposited, fees reconciled

Due date +2 days
If a mandate is less than 3 days old expect a delay

10
Moving clients over to Direct Debit Educate your customers

Once you switch to using online Direct Debit with Explain the benefits and ease any concerns your
GoCardless, you’ll need to set up your clients to customers might have about the switch. For
use it. example, let them know that:

If you’re already using Direct Debit with another • They will always be notified three days before
provider, there’s an easy way to transfer your payment comes out.
client mandates over to GoCardless using the
• They are fully protected under the Direct Debit
‘bulk change’ process. GoCardless handles the
guarantee, meaning they have the right to cancel
whole process and it’s free of charge. Here’s a
and receive a full refund for any payment they
detailed walkthrough on doing a bulk change.
believe has been taken in error.
If you’re new to Direct Debit, moving new and
• They can choose a payment date to suit them,
existing clients to Direct Debit, needn’t be daunting.
for example, when they receive their salary
Here are some tips and tricks to help you move over
(Gocardless lets you submit payments on any day
clients smoothly.
of the month).
Embed Direct Debit into your processes
Incentivise the switch
Make setting up a Direct Debit mandate part of
If you need to, give customers an incentive to move
your new client onboarding process. For example,
over to Direct Debit. For example, pass on savings
you can send a link to the online Direct Debit
to them, offer reduced service fees or offer to make
mandate form with your letter of engagement
a charitable donation on their behalf.
or contract, with the first invoice you send or
on your website at the point of signing up.
Make life easy for yourself
Personalise communications Schedule payments in advance and add ‘Pay Now’
buttons to your invoices so that customers who are
Update the wording on your Direct Debit
not yet on Direct Debit have the opportunity to sign
mandate request email and explain to
up with every invoice you send.
customers why you are making a change.
For further personalisation options, check out For more ideas on encouraging your customers to
the GoCardless Plus and Pro packages. move to Direct Debit, take a look at our guide to
maximising Direct Debit uptake.

“Clients really love the simplicity of the Direct Debit

approach and they’ve been really positive about paying
through GoCardless. Most are keen to set it up and to not
have to worry any more about paying their invoices
manually. It’s one less thing for them to worry about.”
Barbara Gaunt, Office Manager, FD Works

11
Taking Direct Debit payments Post-submission process

The process of taking Direct Debit payments Full details of payment timings can be found in
varies depending on which access route you this guide. If a payment is successful your account
choose. Using GoCardless simplifies most of the will be credited. If it fails, Bacs will send a message
trickier parts, including: detailing the failure.

• Notifying clients. GoCardless sends your clients Indemnity claims

a bank-approved advance notice of each
payment. While the Bacs standard notice is The Direct Debit Guarantee allows your clients
10 days, GoCardless has an agreement with our to request a refund on payments. In practice,
sponsor bank, RBS, that reduces the advanced only 0.2% of payments receive requests, but it’s
notice to 3 days. important to understand the process. See the
Direct Debit Guarantee guide for more information.
• Submitting payment requests. GoCardless
handles Bacs submissions on your behalf. With
GoCardless, you can submit payments and new
mandates at any time (some other providers only
let you do this once a month).

• Getting paid faster. GoCardless has optimised

the Direct Debit collection process to collect
funds soon as possible within the Bacs Direct
Debit scheme framework (3 days Advance Notice,
2 Day Holding period).

In general, whichever access method you use, once

you’ve set up your clients’ Direct Debit mandates,
you can collect payments at any time. Here are the
key points to remember.

Notifying clients of payments

You’ll need to give ‘Advance Notice’ before

collecting a payment. For fixed amounts, you can
send one notification with details of frequency and
amount. But if your payments vary, you’ll need to
send advance notice before taking each one. This
must contain payment date and amount.

Submitting requests to the banks

Payment requests are submitted through Bacs,

routed to your sponsor bank and your client’s bank.
When the payment is due, your bank credits your
account, while your client’s bank debits theirs.

12
 Next steps
Measuring success for your firm
Many of the accounting firms that have switched
over to online Direct Debit have experienced
impressive results. So how can your firm measure
your own success?
If you’ve invested time or money in switching to
Direct Debit, you’ll want to know ROI.
Consider tracking the following:
Average debtor days
What were your average debtor days before
and after using Direct Debit? Skype for business
platform VIA halved its debtor days with
GoCardless.
Outstanding debts
Have you seen a reduction in outstanding debt since
switching to Direct Debit? SRK Accounting reduced
monthly debt by £50,000 with GoCardless.
Time saving
How much time were you spending on payments-
related admin before and after moving to Direct
Debit? Consider particularly: time spent chasing late
payments and manually reconciling payments with
your accounts. The Wow Company saved four days
per month on payments admin with GoCardless.
13
Measuring success
for your firm
Advising your clients
on Direct Debit
Hiring costs
With the time savings you have made, have you
been able to make any savings on overheads such
as admin hiring? Norwich Residential Management
avoided having to hire additional support staff as
their business grew by using GoCardless, while
Wow Company has avoided hiring a finance team
to chase debts.
Direct Debit uptake
The benefits of Direct Debit are even greater when
more customers are using it. What percentage of
your regular customers pay by Direct Debit? Has this
increased? For ideas on how to increase uptake, see
this guide.
Advising your clients on Direct Debit
As the above stories show, streamlining your client
payment process with an integrated Direct Debit
system can free up substantial amounts of time for
your team. And where better to spend it than on
developing stronger client relationships?
In addition to doing all the things that make sense
for the unique needs of your clients, why not also
consider advising them on how to implement Direct
Debit for their own businesses? This guide has given
you the knowledge to do just that, enabling you
to help your clients enjoy the same benefits that
your firm does. GoCardless has also created the
Accountants’ Toolkit, full of tailor-made resources
you can pass directly onto your clients to get them
up and running with Direct Debit.