6 minute read
Battle of the payments
Choosing the best payment option for your firm
@GoCardless @CommsBreakdown
Steve Ash, Consultant and Writer,
CommsBreakdown
Steve is a consultant and writer, specialising in accounting, marketing, business software and fintech apps. He’s partnered with GoCardless, provider of automated payment solutions, to find the best way for your Xero firm to get paid.
Getting paid on time is vital element of keeping cash flow positive and giving your Xero firm some financial stability. But with so many different payment options to choose from, how do you know the best way to get your cash collection done and dusted?
Steve Ash from CommsBreakdown has partnered with GoCardless to run through five of the key payment options, outlining the pros and cons of each option...
75 days is the average
time it takes to get paid for UK small and medium-sized accounting firms. And the story isn’t much better in Australia, with the average debtor days for Australian firms sat at 55 days. So does accounting have a payment problem?
With such a variety of different payment options and online payment gateways now available, is there a better way for your Xero practice to get paid?
To get you up to speed with wide range of payment options out there, we’ve pulled together the key contenders for a 2018 ‘Battle of the Payments’ showdown.
1. Cheques
Payment cheques (or checks in the US) have long been a traditional But the concept of paper-based cheques, instructing a bank to pay a fixed amount, is starting to look rather long in the tooth compared to many other payment options.
Despite plans to discontinue cheques by 2018, consumer backlash has meant that cheques are still alive and kicking as a way for customers to pay large bills.
payment method, particularly in the USA.
The pros of cheques:
Good for large payments where you want to avoid any large transaction fees Admin commitment manageable if you only have a few clients
The cons of cheques:
Banks will charge you for each cheque you cash Cheques can take up to 7 days to clear Amount is fixed by the client when writing the cheque Lots of manual processes (paying in, updating records) needed Starting to look outdated in the digital age
Overall rating:
2. Bank transfers
Bank transfers (or money/wire transfers) are another tried, trusted and traditional method of clients paying their bill. Using their online banking, or by giving their bank a direct one-off instruction, clients can make a direct payment to your business account. Bank transfers are typically fast and easy to initiate, but there is one key drawback – it’s the client who’s in control of when payment is made, meaning that late payments are highly likely.
The pros of bank transfers:
Reliable and fast for the customer to set up No associated costs for standard bank transfers (unlike cheques) - though there may be charges for larger sums
The cons of bank transfers:
Customer must initiate payment, so you have limited control Late payments are highly likely Large amounts require CHAPS in the UK, at a premium cost
Overall rating:
3. Standing order
won’t know if payments are late Inflexible when changing the amount or date of a payment Risk of late payment due to reliance on the customer setting up the order High admin due to the need to check if payment has been received
Overall rating:
4. Direct Debit (through the Bacs, Becs and ACH schemes)
A standing order is an automated payment method, where your customer instructs their bank to permission to automatically take
pay you a fixed amount at regular intervals.
Standing orders ‘push’ predefined funds from the customer’s account to your business bank account. payment – although clients must payment (this can be done online).
To set up an order, your customer contacts their bank – in person, or via internet banking – and then specifies the amount, frequency (weekly, monthly etc.) and date that payments should be made.
The pros of standing orders:
Automates the payment process Free of charge for both parties Easy and quick for payer to set up Helps collect recurring payments
The cons of standing orders: Direct Debit is an automated payment system where you’re given funds directly from a client’s bank account.
The Direct Debit system ‘pulls’ funds directly into your business account, unlike the ‘push’ method used for standing orders. So with Direct Debit you’re not reliant on your customer initiating the complete a mandate authorising on time (once set up)
You must notify your customers of the amount of date of payments at least 3 days in advance, but your provider can do this for you.
Once payment has been processed, funds take a few days to clear. Payment amounts and dates are not fixed, so Direct Debit is more flexible than using standing orders.
The pros of Direct Debit:
Extremely flexible, with the ability to change payment amounts and dates Once set up, needs minimal administration – and can be managed online with off-the-shelf tools like GoCardless Automates regular payments and boosts cash flow Solutions like GoCardless integrate with billing systems like Xero, giving you automatic reconciliation Safe and secure – in most markets, consumers are protected by a Direct Debit guarantee
The cons of Direct Debit:
The first time you take a payment, your customer must fill out a Direct Debit mandate Cost implication of using the Direct Debit system, although this can be a small as a 1% charge on the transaction (much cheaper than cards)
Overall rating:
5. Automated cards payments
Recurring card payments are an automated payment option where
customers authorise you to take payment using a saved debit or credit card. They’re generally used for regular payments where convenience of payment is a priority or where invoice amounts may vary.
They can be set up on the phone, in person or online and only require the customer to provide their card details once and then give authorisation for a recurring card payment to be taken.
The pros of automated card payments:
Highly convenient for customers – just share their card details and authorise a CPA Simple for your business to set up Automates regular payments and boosts cash flow Good for taking automated payments from customers outside EU and Australia High failure rates (cards expiring or credit limits being reached) Admin time higher than Direct Debit due to increased failure rate Cost per transaction is high, when compared to standing order or Direct Debit – typically >3%
Overall rating:
Who wins the battle of the payments?
So, if you’re a Xero practice looking for the best possible payment options, which of these contenders should be top of your list?
Cheques and bank transfers don’t make the cut – as ‘push’ methods, your firm has no control over when payment is received (although bank transfers may be suitable for same reason, standing orders are problematic, relying as they do on the client making any changes to payment amounts or dates.
For our money (pardon the pun), Direct Debit or recurring card payments are the options that win out in the ‘Battle of the Payments’ war. They both automate the payment process, they put you in control of when and how much is taken, and they’re both available as online options.
But if you’re trying to keep down transaction costs and you don’t larger, ad hoc payments) . For the
want to worry about having to update customer card details as they expire, then Direct Debit via GoCardless is a great option for UK, EU and Australian Xero firms.
FIND OUT MORE...
See how GoCardless can help your practice: gocardless.com
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