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December 3, 2019

What is direct debit?

When you set up a direct debit with a customer, you can collect payments straight from their bank. Of course, you have to notify them ahead of time what you’re taking and when, but the customer doesn’t have to do anything to make the payment happen.

Benefits of direct debit for small business

While it takes 30 days or more for a customer to pay an invoice, direct debit is almost instant. Payment is triggered as soon as you send the bill.

It’s convenient, too. Customers don’t have to approve payments or remember to make payments, which simplifies their life. And you don’t have to spend as much time tracking invoices or chasing payments. Businesses that use direct debit to bill customers say they get back a day a week in admin time (this is an average and would obviously change depending on size).

How does direct debit work?

Your customer fills out a direct debit form (also known as a mandate) authorising you to take payments from their bank. When a payment is coming up, you send the customer a notice saying how much will be taken, and when. The customer doesn’t need to take any other action. When the due date comes, the payment is made automatically.

Easy direct debit for small business

Direct debit was first used by Unilever in the 1960s, but it was complex and expensive. And that’s the way it stayed for a long time. Online technologies have recently streamlined the process, making it affordable for smaller businesses.

As a result, you can now set up for free, and direct debit a customer for between 20 cents and $2 per transaction.

Paying a Xero invoice by Direct Debit using the “Pay now” button in connection with GoCardless

Through Xero’s partner, GoCardless, all our online invoi

ces now include the ability to set up a Direct Debit as well as the usual other options of paying by credit card or direct credit.

Paying by Direct Debit (powered by GoCardless) is simple, safe and secure. It’s a quick process to set up the initial payment and after making your first payment you’ll have the option to allow future invoice payments to be collected automatically on the due date of the invoice - saving you time and effort. Payments are secure and protected by the Direct Debit scheme regulations.

In order to pay by Direct Debit from the invoice directly, please follow the steps below:

Click Pay now on the invoice

Choose the Direct Debit option, then click Make payment

Fill out the online payment form

Enter your bank account details on our secure form.

After you’ve confirmed your account details, you’ll be shown a Thank you screen. Your payment will be collected by Direct Debit on the date shown and you’ll be notified by email before the payment is collected.


Choose if you’d like to automate future payments

You have the option to click Yes, pay future invoices automatically so that future payments to this business can be collected automatically on the due date of the invoice. We recommend this approach as it saves you the hassle of manually paying for future invoices, and you can be confident that payments are fully protected by the Direct Debit scheme regulations.

What happens if I choose the automatic payment option?

No further action is required from you. You will be notified by email before any future payments are taken on due dates.


What happens if I don’t choose this option?

For each future invoice you’ll need to click on the Pay now option on the invoice, select Direct Debit and click approve this payment.

We certainly encourage all clients to use the Direct Debit option, particularly for regular charges such as Xero subscriptions.If you need further information about GoCardless then please contact our office.

You don’t need to be a Xero customer either if you wish to explore using GoCardless for your own business.Explore GoCardless by clicking through to their website https://gocardless.com/en-nz/.