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Direct Debit, Standing Order or Card Payments – which is best?

What’s the best recurring payment method for your business?

Do you want to start taking regular payments from your customers?

If you are searching for the best way to collect utility bills, subscription payments, or any other kind of recurring payment, then this is the guide for you.

Let’s take a look at three of the most popular recurring payment methods:

  • Direct Debit (DD)
  • Standing Orders (SO)
  • Recurring Card Payments (RCP)

And weigh these up in terms of:

  • Cost
  • Success Rates
  • Speed
  • Control
  • Flexibility

Check out our video below, or keep reading to find out more:

Cost – which payment method is cheaper?

One of the most popular questions we are asked and arguably the most important!

Standing order:

Costs you nothing!

They are free to administer, as long as you are able to manage them correctly, these can be the cheapest recurring payment method for businesses.

Recurring Card Payments:

High, typically around 1.4% of the transaction value + 20p per transaction.

However, there are usually additional charges such as non secure transactions or recurring payments, which can increase the cost of RCP.

Direct Debit:

Low-Medium:

If you turnover around £5million per year and have a good relationship with your bank, you may be able to secure your own Service User Number and administer Direct Debits yourself, which can make Direct Debits extremely cheap.

If you are a small to medium sized business, you will likely need to get a Service User Number from a third party, such as London and Zurich, which will increase costs slightly, but can also offer other benefits such as helping you manage your Direct Debit collections.

 

Success Rates – which one prevents payment failures best?

There’s no point trying to collect payments from your customers if they’re going to fail! So which is the most successful?

Standing Order:

It depends!

Standing Order is an unknown, success rates vary from business to business and customer to customer. Standing Orders completely rely on your customer to set them up, and can be cancelled at any time without your knowledge.

So if your customers are reliable and trustworthy then no problem, but if not then things can go wrong.

Recurring Card Payments:

Around 85%

Cards expire every 4 years, and can be lost or stolen meaning cards are replaced. On top of this, there can be problems when a customer lacks funds in their bank accounts, switches bank accounts, and so on. All of this can cause payments to fail.

Direct Debit:

98.5% or more, though this can depend on your sector.

Direct Debit is one of the most reliable ways to collect payments, as it’s bank-to-bank which means there’s less ways a payment can possibly fail, and you as a business can initiate the payment without needing to get the customer involved.

Plus, there’s no failed or lost cards to deal with!

 

Speed – how long does it take for funds to clear?

Lets look at the time it takes for these payment methods to get money into your bank account:

Standing Order:

3-5 working days:

They are usually processed on the same day that they are set up, however it typically takes between three and five working days for them to clear and funds to be added to your account.

Recurring Card Payments:

3-4 working days

From the point of collection to the payment being made, it normally will take 3-4 working days. You can also use Faster Payments to get payments on the same day, but this isn’t guaranteed.

Direct Debit:

4-5 working days.

Similar to Card Payments, Direct Debits require time for processing by Bacs. You must also give customers advance notice before taking payments, which can increase the time between sign up and funds arriving in your account.

 

Control – who’s in charge of the payments?

You might need to start charging your customers at a higher rate, so let’s look at which method gives you the most control over your payments:

Standing Order:

No control!

You will have absolutely no power over the collection schedule that your customers set up with their bank account, meaning you can’t increase charges, change payment dates, or do anything else with the payment.

With Standing Orders, it’s all down to your customers!

Recurring Card Payments:

Medium level of control

Recurring Card Payments give you a similar level of control to Direct Debits. However, if a customer changes bank account or changes their card, you won’t know about it and sometimes control will be out of your hands.

Direct Debit:

Very high level of control

Maybe you need to increase rates for a customer by 10% because they are moving to a bigger subscription package, or VAT increases and you have to pass on that cost, or they need to go from paying monthly to quarterly or even annually.

If you are using Direct Debits, you can do all this without ever needing to involve your customers!

 

Complexity – how easy is it to manage each method?

Some methods require more time and effort to manage, so which is the simplest payment method?

Standing Order:

Very simple

There’s practically nothing required on your end to set up or manage a standing order. That doesn’t mean that they can’t fail though!

If your customers don’t set up their Standing Orders correctly, reconciliation can become very difficult.

Recurring Card Payments:

Quite complicated!

The platform that Recurring Card Payments use was designed for one-off, ecommerce payments. Over the years there has been more logic bolted on to manage recurring payments, and so the system can be very complicated to use.

Direct Debit:

Simple to use

Direct Debits have been around for 50+ years, it’s matured and has front end collection software to make setting up and managing them very simple, as well as making reconciliation much easier.

 

Are you still not sure which recurring payment method is best?

We’re here to help!

At London and Zurich, we have helped thousands of businesses find and get set up with the right payment method for their business.

If you’d like to talk to someone and get advice on choosing a payment method , contact us here.

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