10 considerations when choosing a Direct Debit solution

There are 3 basic types of cost:
· A simple per transaction cost
· A percentage of the transaction amount (normally capped at a maximum cost per transaction)
· A set amount based on a range of transaction volumes per month/year

It’s crucial to analyse your transaction volume, average transaction value, and growth predictions to determine which pricing model is most cost-effective. All Direct Debit providers do enterprise licensing when it comes to high volumes (i.e. they will negotiate). The higher the volumes, the better your ability to negotiate.

Hidden Costs:
Be aware of additional fees, such as bank charges per transaction (note some providers can eliminate bank charges altogether), app fees from your CRM provider, and staff costs for manual file processing. Automation can significantly reduce staff costs.

Organisations need a Bankers’ Automated Clearing System (BACS) Service User Number (SUN) to submit Direct Debits. Smaller organisations often use a Bureau’s SUN to avoid the process of acquiring their own.

For larger volumes, having your own SUN is more cost-effective and allows your company name to appear on customer bank statements.

Look out for Direct Debit providers that can offer a combination of these two if you are a growing organisation or just want to test a provider first.

The goal of any new Direct Debit solution should be to go paperless and improve efficiency.
To make this happen, you have two options when creating mandates (authorisation from your customer to collect future payments from them when they are due).

• Create your own mandate creation page on your website – this is risky, costly and takes significant commitment to be compliant.
• Use a hosted mandate signup page from your DD provider – this is hosted by the DD supplier, is always up to date and compliant and will contain modulus and address validation (SmarterPay and GoCardless among others offer these)

It’s also highly preferable NOT to hold sensitive bank account details from your members or supporters – they would ideally need to be encrypted and have access control to be GDPR compliant. Let your DD provider handle this!

The other part of going paperless is moving towards automated email communications. Every time a new mandate is set up or any changes are made to a payment plan, an email that is BACS compliant needs to be sent out. Look out for DD providers that can automatically send out email communications for you that are always compliant, even if regulations change. Alternately, look for functionality in your CRM that will easily allow you to do this.

If your organisation will be taking mandates over the phone, you will need to follow compliant scripts containing certain questions and another dedicated form for this with anti-fraud protection.

If your organisation has a global membership, consider a DD provider that supports different Direct Debit schemes, such as SEPA (EU), Giropay (Sweden), or ACH (US). Some providers also partner with platforms like Wise to minimize foreign currency conversion fees. Additionally, the integration of Faster Payments, powered by Open Banking, is gaining traction, offering a faster and more cost-effective alternative to traditional Direct Debits.

There are two ways to connect your CRM with your BACS solution – API integration or File Upload/Download.

1. API Integration
This method submits mandates, and payments directly through an API for you, and can also receive files back into your CRM automatically. If you are thinking of going paperless, then this is by far the preferred method of integration, and it will save your staff a huge amount of time.

The best, modern API’s are called REST APIs and can send/receive data in JSON format and will always have file upload/download as a backup (just in case the direct API approach ever fails!). Older APIs which will consume more developer time are SOAP or XML based. Key things to look out for include online documentation, the ability to complete reporting and whether your CRM can send and receive data.

2. File Upload/Download
This is the old-school way of pushing payments out of your CRM where staff need to create, export, upload and download files to process them. The BACS files are full of complex codes which need to be translated into plain English before anyone can understand them, not to mention the extensive time this process takes.

Ask if your DD provider has a free sandbox to test your solution with various scenarios. You should also try doing bulk testing to see how the provider and your CRM responds.

Migrating to a new Direct Debit system requires careful planning. If you already have a SUN, check whether you can retain it when switching providers. Check that you can download the new mandate IDs (not the bank details for data protection reasons), along with the legacy contact or member ID. This last part is crucial to be able to match up the mandate IDs to contacts in the new CRM.

Pay special attention to part-paid invoices when migrating, as these require manual handling to ensure continuity of payments.

These are the two main ways of providing payment information to your DD Supplier and you want your supplier to be able to manage both.

1. Recurring Payments (Netflix model): Taking a set amount each month (or quarter etc..) until you tell them to stop.

2. Ad-Hoc Payments: Amounts are likely to vary month by month or year by year, so you want the CRM system to be the master in determining a schedule of payments for each member. What will be sent across to the DD provider each month will be a list of ad-hoc payments of varying amounts against each mandate.

Direct Debit Failures cost organisations money so you want to receive notification of payment as soon as possible. If you have real time integration that notifies your CRM system as soon as a mandate’s status is changed – this is going to immediately reduce failed payments.

You want your supplier to make reporting as easy as possible for you so you can put your CRM’s advanced reporting tools to work creating meaningful dashboards, alerts and reports. Mandate dashboards include payments made each month and failed payments, with reasons.

Payment dashboards help you spot trends (e.g YOY comparison) and see any payment failures. If you can see reasons for failures, you can set up automated responses and see if you can automatically retry failed payments.