Small and medium-sized enterprises (SMEs) are looking for a reliable way of collecting payments. SMEs account for about 99% of the private company sector, and most of them are frequently affected by issues caused by late payments.
Unpaid bills or delayed payments limit cash flow, notably for companies that offer recurring services. Incessant cash-flow problems reduce the working capital of these companies. It can result in significant debt and the worst possible situation, bankruptcy. One suitable approach to address cash flow concerns is to give a payment mechanism that helps the companies to decide when and how frequently they get payments. This is when Direct Debit payment enters the picture.
What is Direct Debit payment?
Direct Debit Authorization or DDA is a common payment mechanism in which users permit firms or organizations to withdraw payments from their bank accounts. The users can use Direct Debit payments for credit card bills, utility bills, instalment payments, rent, monthly retainer payments, subscriptions, etc.
eGIRO (Electronic GIRO), a direct debit scheme, is a cooperative endeavour of The Association of Banks in Singapore (ABS) and Participating Banks. It is supported by the Monetary Authority of Singapore (MAS) to digitize the GIRO application process and drastically shorten the time it takes to set up a GIRO arrangement.
What are the advantages of Direct Debit Payment?
Here are some of the prominent ones:
- Helps you establish trust: If your organization or business accepts payments via the Direct Debit scheme, you will be closely monitored and given a comprehensive assessment by banks. This ongoing examination will make your company more transparent, allowing you to win the trust of your clients.
- Simple to use: For instance, DBS allows you to sign up with iBanking, AXS, or NETS to use the service.
- Simple implementation: Unlike a manual DDA process, you do not have to undergo any paperwork.
- Receive payments immediately: When you assist your customers in setting up DDA via Internet banking, AXS stations, and NETS terminals, you will be compensated immediately.
- Payment on time: Direct Debit enables business owners to receive payments on time, eliminating the risks and hassles associated with late payments.
- Better cash flow: Direct Debit payments guarantee the payments for your products and services. It helps enhance cash flow, which will lead to healthy working capital. A healthy capital will help your business to function smoothly.
- Efficient: Using real-time service, you can streamline your workflow.
- Direct Debit Guarantee: The “Direct Debit Guarantee” is a collection of guidelines for banks that accept direct debit orders. These policies primarily benefit customers and ensure that they are not held accountable for improper payments. Businesses that utilize the Direct Debit scheme should exercise extreme caution when it comes to deciding on the periods and amounts of payments because the Direct Debit Guarantee recovers the money instantly in the event of a payment error.
- Hassle-free: The convenience of this payment method is that the consumer does not have to go through the hassle of making payments each time. By offering direct debit to your consumers, you simplify the process for them to make payments with limited interaction, which is a significant benefit for doing business with you.
- Lower failure rate: The average rate of failure for direct debit payments is minimal. It is significantly lower than the higher failure rates (5-18%) reported with credit card transactions.
What is the process of a Direct Debit payment scheme?
To set up Direct Debit, you must obtain authorization from your customers to withdraw funds from their accounts. You can take regular payments from the customer account once you receive the authorization. However, you need to notify the amount and date of the transaction to customers ten business days before the scheduled transaction. However, the clients should make sure they have enough money in their accounts.