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What is direct debit?

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Direct debit is a payment method that allows companies to pull funds directly from a bank account on a regular basis. It can be used for subscriptions, bills, taxes, fees, or other regular expenses.

Increasingly, it’s become a staple service among payment service providers.

How does direct debit work?

There are four main steps to direct debit, including:

  1. Authorization: The customer provides authorization to the company to withdraw funds on a regular basis, including assenting to the terms of agreement.
  2. Setup: Once the authorization process is finished, the company can start setting up the direct debit with the customer’s bank. This often involves submitting a request through a direct debit platform or processing system.
  3. Processing: Once it’s time for the payment, the company will submit a request to the customer’s bank to withdraw the funds. The bank processes that payment and sends it to the company.
  4. Record keeping: The company that receives the transaction needs to make sure it has a record of all the direct debit payments that were made. This is to adhere to any related regulatory requirements.

What are the main benefits of direct debit?

Direct debit can offer several advantages for global workforce payments, including:

  1. Convenience: Automation makes life easier for both the payee and the payer — meaning there’s no manual intervention necessary and costs go down.
  2. Cost-effectiveness: No paper checks and no associated processing fees makes direct debit a cheaper payment option compared to other alternatives out there.
  3. Enhanced tracking: The directness of direct debit means that companies can get access to real-time tracking of payments. This can help with managing cashflow and financial reporting.
  4. Improved security: Direct debit transactions are often nestled within banking regulations. That means there are a lot less concerns about inadequate security measures.
  5. Increased transparency: There’s a real audit trail when it comes to direct debit. This makes it easier to comply with regulations and local laws.
  6. Timeliness: Because direct debit transactions are made on a set schedule, there’s almost no chance of delayed payments, which is a great relief to companies and customers alike.
  7. Reduced errors: Repetition and automation make direct debit less susceptible to errors than other forms of payment like wire transfers or checks.

Choosing a payment provider for direct debit: what to keep in mind

More payments providers are starting to offer direct credit. This is an efficient and cost-effective option which can be helpful for companies.

In any case, choosing a payroll payments solution for direct credit requires a few considerations:

  • Security: The payment distribution platform of your choice should have a track record that demonstrates its trustworthiness as a secure platform.
  • Integration: The platform you partner with should be able to provide software that easily integrates into your other financial systems, including accounting and banking solutions.
  • Compliance: Compliance is a permanent consideration in the world of global payments. To keep your business far from any breaches, you’ll want to choose a payment platform or solution that is knowledgeable in the subject of regulations and can easily navigate this environment.
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