Direct debit, also known as direct withdrawal or ACH, is a way of collecting customer payments by withdrawing money directly from your client’s bank account, as opposed to processing their payment with a credit card. ACH is one of the most popular ways to accept payments for businesses that sell services.
It’s common to pay a flat fee to process direct debit transactions while credit card fees vary a bit more, depending on a number of factors related to your business.
The way credit card processing works may seem intimidating, particularly for high-ticket purchases. However, only offering ACH options does limit your customers and may not make you as competitive against other businesses that do offer credit card payment acceptance. You’ll want to weigh your options and your unique business model to determine what will set your business up best for growth and success.
Having said that, direct debit can be a great fit for some business types and can build the foundation for a passive stream of income that gives the business cash flow stability.
5 business types that benefit the most from using direct debit:
1.) Health, Fitness & Exercise Centers
Many fitness business owners find that collecting monthly dues is one of the most stressful times of the month. They are plagued by their clients’ excuses for why they can’t pay, “right now” and maybe that they’ll be able to pay, “in a few more days.” Often the days stretch out and they are stuck waiting indefinitely to receive payment.
As a friend and trainer, the business owner doesn’t want to bother their client too much about making the payment. Meanwhile, that client’s monthly membership payment is needed to keep cash flowing through the business. Auto-recurring direct debit payments can solve this challenge because it creates a payment cycle that is automated. This eliminates the need to pester clients about monthly payments. Every month on a predetermined date, the direct debit software automatically withdraws the payment and deposits it into the business bank account. By automating this process a fitness business owner will save a ton of time that they can invest into more satisfying parts of their business.
2.) Law Firms & Legal Practices
The retainers used by law firms and legal practices can be cumbersome sums to manage. Setting up monthly wire transfers from client bank accounts can get expensive and processing credit cards even more so. By using direct debit to collect monthly retainers, law firms can save a substantial amount of money on wire fees, while leveraging automatic, recurring payments to guarantee that monthly retainer payments arrive on time, every time.
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3.) Day Care & Childcare Facilities
Running a daycare is a time-intensive business. Tracking down parents who are not paying their monthly childcare fees on time is one of the last things childcare center owners have the time and energy for when running around after kids all day. However, if clients aren’t paying, cash flow becomes unpredictable and can put a business at risk. By using direct debit, monthly payments are automatically withdrawn from the clients’ bank accounts. Putting a recurring payment option in place will free up time for launching new marketing plans and finding new clients, instead of tracking down delinquent payments.
4.) Landlords & Property Management Companies
When the timing of rent payments fluctuates constantly it can cause serious concern for property management companies. Unlike large manufacturing and industrial businesses, property management companies don’t have the luxury of collecting on Net 30 and Net 60 terms. When a business’s financial stability relies on timely payments, there’s no better choice than auto-recurring direct debit.
Signing tenants up for auto-recurring billing is an easy process that is as simple as filling out an online payment form. This form authorizes the property management company to automatically withdraw the monthly rent amount on a pre-determined day. It’s a win-win situation; cash flow is stabilized for landlords and tenants get to enjoy the stress-free aspect of paying rent via direct debit.
5.) Freelance & General Contractors
Freelancers and contractors are used to taking on large-scale projects. Websites can easily cost thousands of dollars, and general construction projects can range from the low 10s to upper 100s. When it comes to processing these high-ticket payments, there’s no better way of doing this than direct debit. Credit card processing fees and wire transfer fees can add up quickly while the beauty of direct debit is that it costs just $0.55 per transaction, regardless of dollar value.
To avoid surcharges added onto payments over $5,000, a simple recurring payment plan can be set up. This flexibility is something that freelancers and contractors can pass onto their customers to accommodate a variety of payment schedule needs.
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