Direct debit is an automatic payment that happens periodically after a customer requests it. It automatically transfers money from your customer’s bank account to your bank account.

Becoming a direct debit user requires already having an established business. Direct payments are fast. As long as you file requests within the cut-off time, funds are within your account by 9.00am the next business day. The Australian Payments Clearing Association (APCA) coordinates direct debit payments in Australia.

Benefits of direct debit transfer

Direct debit payments can have advantages over other forms of payments. Check out these examples:

• Convenient for recurrent payments

  Direct debit payments are convenient for recurrent payments.

• Low labour costs for recurrent payments

  Direct debit payments have low labour costs for recurrent payments.

• Lower risk of theft than cash

  Since payments go directly into your account, direct debit has less risk of theft than cash.

• Automatic

  Direct debit payments are automatic, so they can be more convenient and less risky than manual forms of payment, such as EFTPOS and cash.

• Fast transaction speed

  After you set them up, direct debit payments are fast.

• Proof of payment

  Direct debit payments provide proof of payment to you and your customers, which can help avoid disputes.

Disadvantages of direct debit transfer

Direct debit payments have some disadvantages over other payment methods. Check out these examples:

• Inconvenient for one-off payments compared to EFTPOS and cash

  Direct debit requires gaining authorisation from your customer and waiting for your bank to organise payment from your customer’s bank. Most of the benefits of direct debit also don’t apply for one-off payments. Direct debit is most suitable for recurrent payments.

• Service fees

  Your or your customer’s financial institution may charge fees to process direct debit payments.

• May be unavailable for new businesses

  Becoming a direct debit user requires your business to have adequate financial strength, integrity and fraud controls.

Processing direct debit payments

If you want to set up direct debit payments, try these steps:

1. Make sure your business is financially stable and has good fraud controls to protect your customers.
2. Apply to become a direct debit user through your financial institution. Your financial institution is your bank, building society or credit union. Your financial institution will check your business’ financial strength, integrity and reliability.
3. If your financial institution approves your request, your business will get a unique user identification number that will let you set up direct debit payments.
4. Let your customers know you offer direct debit. If they want to use it, your customers might request to pay by direct debit.
5. Put your customer’s request in an electronic file.
6. Send the electronic file to your financial institution. Your financial institution will process your customer’s request and send a copy of the request to your customer’s financial institution.
7. If your customer’s request is successful, your customer’s financial institution will begin automatically paying money into your account.

If your customers pay by direct debit, you must fulfil certain obligations. Check out these examples: