6 factors businesses must consider when taking recurring payments

Direct debit, credit cards and standing orders go head to head to determine which is the best option for firms that need to collect recurring payments…

Whether you operate a gym, a magazine or recipe box subscription service or need to collect rent from tenants, setting up an efficient and reliable system for collecting recurring payment is essential to ensure you get paid promptly and have peace of mind.

If your business needs to take recurring payments there are three main methods of doing so: direct debit, credit cards, and standing orders.

With a direct debit, your customer makes an agreement with their bank authorising you to collect regular payments from their account, while recurring card payments involve the customer authorising you to take payments by either debit or credit card, and a standing order is when a customer instructs their bank to pay a fixed amount at regular intervals.

But which is the better option for start-ups?

We put direct debit, credit cards and standing orders head to head to compare which offers the best service and value for your business…

Which is easier to set up?

Direct debit

The customer sets up a direct debit through a UK bank online or by phone and can start sending payments almost instantly. The business (you) controls when and by how much.

Credit card

A fairly simple sign up, either by phone, online or in person; nevertheless, the time can vary wildly and you may have to go through the added hassle of getting a merchant account if you want to take card payments.

Standing order

As you’re not required to go through a bank to set up a standing order, the customer is in charge; meaning you lack authority and control over how and when you get paid.

Winner: Direct debit

Which is lowest cost?

Direct debit

The cost per payment is low but dependent on who your provider is. Generally, you should expect to pay between 20p and 40- or 1%. Direct debit costs with GoCardless are capped at £2.

Credit card

The ongoing fees for credit card payments are typically quite high at around 20p + 3% per transaction, as well as the charges incurred from using a merchant account.

Standing order

Other than the possibility of a small fee taken by your bank, the cost of setting up and using a standing order for regular payments is low, (though there might be increased admin overheads associated with managing standing orders, since you need to check your bank to see if payment has arrived and manually update your accounts.)

Winner: Standing order

Which is faster?

Direct debit

Initial payments through direct debit can take six working days whilst the funds clear, with subsequent payments taking five.

Credit card

Initial payments can take seven working days; after that timings can vary between providers – some can be instant, while platforms like PayPal offer 24-hour turnaround.

Standing order

Using Faster Payments, standing orders are usually processed and received on the same day they are sent.

Winner: Standing order

Which is more flexible?

Direct debit

Direct debits give you the freedom to collect varying amounts from your customer and change the amount or date of payment without their authorisation.

Credit card

Similarly, credit cards allow you to change the amounts and date of payments and take variable amounts.

Standing order

On the other hand, standing orders lack flexibility; only allowing for fixed amounts at regular intervals. Any changes have to be authorised by the customer.

Winner: Direct debit/ credit card

Which is more reliable?

Direct debit

There’s a very low risk of late payment with direct debit as you can easily charge tardy customers and encourage them to be prompt.

Credit card

Like direct debit, you can charge for late payments.

Standing order

There is a low risk of late payment once a standing order is set up but you can’t charge them for late payment.

Winner: Direct debit / credit card

Which offers better customer retention?

Direct debit

Payment failures are very low for direct debit, at below 0.5% for online providers.

Credit card

The failure rate for card payments is quite high at around 5%.

Standing order

You receive no notifications if a customer doesn’t pay up and then have to go through the hassle of chasing them up.

Winner: Direct debit

Conclusion

So often the case, it really depends what your key drivers are.  Standing orders are the lowest cost, while Credit cards have merit for speed and flexibility. But to rely on your business being paid on time, flexibility, and the ease of setting up your payments, direct debits will give you what you’re looking for.

GoCardless is a leading UK Direct Debit provider, currently processing payments for over 35,000 businesses across Europe. Sign up in minutes and take control of your payments, either using the online dashboard, one of the GoCardless partner integrations or by building a tailored integration with the powerful GoCardless direct debit API.