The power of direct debits

This article is all about how to harness the power of direct debits for small business.

You probably know already that I’m very keen on small businesses making lots of lovely money which is why I decided all those years ago to work as a business coach.

As well as being profitable, I love my clients to be in the position of not having to worry about cash flow, and therefore being able to sleep at night.

Why you might want to get paid by direct debit

When your client agrees to pay you by direct debit, you set up a system where you automatically take money out of their bank account.

You can do this annually. For example, if you charge for a maintenance contract, monthly for ongoing services or at irregular intervals. It’s this one which can be particularly useful for smaller businesses.

I have a client whose company does web development projects, usually between 3-8k per project. She used to invoice the client in 3 equal chunks. Once at the beginning of the project, once halfway through and then again when everything had been signed off at the end.

This is a good way of helping cash flow. But direct debits for small businesses take this sort of billing to a new level. You sign up the client for three direct debit payments, agree on the dates, and voila, the money is in your bank account without you having to think about it.

Isn’t it really difficult and just for big companies?

You used to have to do direct debit through your bank, and you needed to have thousands of customers to make it worthwhile. But, like many things, that’s all changed now. You don’t need to do it through your bank and can set it up yourself using an online payment system. Direct debits have become easy to use for small businesses.

If you’re taking repeat payments and the value of these is over, say, 20k a year, using direct debit becomes worthwhile for even a small business.

And just talking about taking direct debit payments for when clients pay you in instalments for a project, has made several of my clients think about what they can charge clients for on a recurring basis.

The classic situation here is with something like web development, where you split the instalment payments for the big project, and then also charge on a monthly or annual basis for smaller items such as hosting, a maintenance package, or for regular updates.

This increases your monthly recurring revenue, and I especially love a business with monthly recurring revenue. 

How can this work for other service businesses?

You can use the power of direct debits for other kinds of service business as well. I’ve seen this with lawyers, massage therapists, chimney sweeps, window cleaners, copywriters. Any business where you want to encourage clients to come back every month or every week can use this to increase recurring revenue and improve cash flow.

And don’t you owe it to your clients to get them to use you more regularly? And not to have the hassle of having to think about paying you?

Other benefits of using direct debit for a small business

As well as popping money into your bank account, using a direct debit for small businesses means that you don’t have to chase people for money.

This saves you time and takes away any chance of having to have awkward conversations with your client about them paying late. And it makes you look super professional.

Ok, that’s great, what do I do?

There are a few online direct debit systems, but the one I’ve used with clients is the London & Zurich one. It’s pretty easy to get set up and to match with your accounts software.

Using Stripe as an alternative to direct debits

You can use regular payments in Stripe as a different way to do this. The advantage is that you can set up a lovely looking online form, and get them to pop in their card details, and you can handle any refunds or changes easily through Stripe.

There is one disadvantage to using Stripe instead of direct debits for a small business. People don’t change bank accounts very often, and when they do, their new bank transfers the direct debits. However, your customers’ cards do change every few years, so you could be left with old card details and having to chase them to update their card.

Do you want more ideas for building a successful company?

I’ve written dozens of ideas and how to guides here at the Joy of Business to help you to build your business.

Some of them are in my Secrets of Business Success downloadable guide – see the bottom of this page for how to get your hands on this.

And here are some more articles you’ll find invaluable for creating the kind of business you want to be known for:

More on Monthly Recurring Revenue and why you want more of this for your business

Thinking about the recurring income business model and how you can build this into how your company works

Does your business pass the Tesco Test?

Photo credit – I couldn’t find a good image for “direct debit” for some reason, so I used this beautiful image of a hoverfly by Jinterwas I found on Flickr, invoice by rawpixel from unsplash.