One major consideration for any business today is how to efficiently collect their revenue. BACS electronic payment services have been a popular option for many organisations, using Direct Debit for the collection of Council Tax, Business Rates, mobile telephone bills, utilities, loans, insurance, supplier payments and subscriptions. For many years BACS has been the processor the Uk s Direct Debit service, but it s only in recent years where business have realised the true potential and benefits of offering this payment method to their customers. Research by BACS shows that, if provided with the option, between 50% of the UK bill paying population will opt to pay by Direct Debit, with 75% of adults preferring Direct Debit overall. Organisations prefer automated or online payments over paper based payments such as cash or cheques due to the costs involved in reconciling these transactions. Paper based transactions need to be manually processed, whilst the processing of electronic payments can be automated. But why do so many organisations prefer their customers pay using payment types such as Credit and Debit cards rather than Direct Debit, which incurs lower transaction fees from the banks and can be more labour efficient. This might be due to the perception that Direct Debit can only be used in instances when the payments can be spread over time, allowing the payer to budget. One-off or first collections are often made using Debit or Credit cards; however the Direct Debit rules accommodate any form of collection schedule required by the organisation. The rules surrounding Direct Debit stipulate that the payment terms are defined by the business collecting the payments (the Originator). This means that, subject to the agreement from the payer, collections can be made for any amount at anytime and over any period. This flexibility means that Direct Debit is not as rigid in its use as it may first seem and could effectively be used to replace more expensive card transactions. In order for an Originator to reap the full benefits of collecting by Direct Debit, they need to understand what their payers expect from a payment method and make Direct Debit a more desirable option. The main reason for payers choosing not to pay by Direct Debit is the payment date. Many organisations collecting Direct Debits still restrict themselves to a single debit date each month, whilst at the same time accepting Card transactions for any day of the month. Having a lack of payment date choice makes Direct Debit less desirable, especially to those payers receiving funds into their account on or after the prescribed due date. Inflexible payment dates can mean that budgeting is difficult for payers and as a result, collections are often returned by bank as unpaid Direct Debits and in turn causing more costs. By offering additional payment dates and allowing their payers to make a choice of the most suitable date for them, Originators are removing what is deemed as the only real negative aspect of Direct Debit. Once an Originator has addressed inflexible collection dates and their Direct Debit penetration is increasing, it is vital that all Originators ensure their payment processes are robust and efficient. Established Direct Debit payment processes are often seen to be working successfully, however our experience has shown that with increasing volumes, inefficiencies also increase, making Direct Debit a more expensive option than realised. Although revenue is being successfully collected, those Direct Debit s being returned unpaid are simply looked upon as a cost of business . What most Originators don t realise is the cost involved in recovering these missed collections and that operational savings can be made by reviewing their processes. Regularly reviewing the payment processes can remove causes of errors as well as the manual effort by automating processes using services such as the Automated Direct Debit Instruction Service (AUDDIS) or Paperless Direct Debit (PDD). In summary, for most Direct Debit Originators, the process of signing up payers, lodging the Direct Debit Instructions and collecting the funds, works. In order to reap the fullest benefits from Direct Debit, operating costs must be monitored and reduced where possible. However all too often other projects and topics take predominance within day-to-day business activities and the use of BACS and Direct Debit is overlooked. Over the past few years, the BACS system itself has been upgraded to meet the needs of the 21st century and Originators themselves should now follow suite by removing manual effort and becoming overall more efficient.
Author: James Tiltman, Managing Director. Hourglass Business Consulting Ltd Payments Training & Consultancy
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