Direct Debit
A pull-based payment where, with the customer's standing authorization, you collect money directly from their bank account on a schedule.
Definition
Direct debit is a pull-based payment: instead of waiting for the client to send money, you collect it directly from their bank account under a standing authorization they signed once, called a mandate. In the US this runs over the ACH network as an ACH debit; in the UK and Europe, Direct Debit and SEPA Direct Debit are the equivalents. Either way, the client agrees up front, and you initiate each collection.
In practice, the client completes a short authorization form with their bank details, and from then on your invoicing system can pull the amount due on each invoice or billing date. Collections take a few business days to clear, and the client retains the right to dispute unauthorized debits, so keeping the signed mandate on file matters. Fees are bank-transfer cheap, far below card rates.
Why It Matters
Direct debit flips the power dynamic of getting paid. Instead of sending an invoice and hoping, you collect on the due date automatically, which all but eliminates late payments from forgetfulness, the most common kind. For retainers, subscriptions, and any recurring billing, it is the single most effective tool for predictable cash flow.
It also tends to fail less than cards. Bank accounts do not expire the way cards do, so recurring direct debits avoid the steady churn of declined payments from reissued cards. The trade-offs are clearing time of a few days and the need to handle occasional returns for insufficient funds.
Examples
- 1
A marketing agency moves 15 retainer clients to direct debit; late payments drop from a third of invoices to nearly zero overnight.
- 2
A bookkeeper collects her $450 monthly fee by ACH debit on the 1st; funds clear by the 3rd and the fee is under a dollar per collection.
- 3
A client's $2,000 direct debit is returned for insufficient funds; the system retries five days later and the payment clears.
Related Terms
Quick Navigation
Ready to put this into practice?
InvoiceLaunch automates invoicing with built-in payment terms, late fees, and more.
Get Started