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A Guide to Choosing Between Recurring Card Payments and Direct Debits

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Harnessing the power of recurring payments can be a game-changer for businesses. Whether you’re running a subscription-based service or offering ongoing memberships, understanding the ins and outs of payment methods is key to unlocking your business’s full potential. 

In this blog, we explore recurring card payments and Direct Debits, highlighting their benefits and addressing some of the challenges, all tailored specifically for businesses like yours.

Recurring card payments: Your revenue stability pillar

Imagine having a reliable stream of income flowing into your business like clockwork. That’s the beauty of recurring card payments, also known as continuous payment authorities (CPAs). 

What is a recurring payment?

A recurring card payment is a regular payment taken using the customer’s card details, rather than the account number and sort code. This payment method is accessible globally and is often favoured by large streaming companies, gym memberships, and insurance policies, as it offers immediate or next-day clearance compared to Direct Debits, which can take several days.

What are the benefits of recurring card payments?

  • Steady revenue flow: They provide a consistent source of income, giving you peace of mind and enabling better financial planning.
  • Customer convenience: Simplifying the payment process with card payments boosts customer satisfaction and encourages repeat business, ultimately driving revenue growth.
  • Efficient operations: Automated payment processing reduces administrative overhead, allowing you to focus on growing your business rather than managing payments manually.
  • Expanded customer base: By accepting card payments, you tap into a broader market segment globally, appealing to customers who prefer the convenience and security of card transactions.

But of course, we can’t ignore the hurdles that recurring card payments can bring:

  • Payment failures: Dealing with payment failures due to expired or declined cards can disrupt cash flow and require dedicated resources to resolve promptly.
  • Risk of chargebacks: Chargeback disputes can eat into your revenue and consume valuable time and resources, impacting your bottom line and operational efficiency.
  • Transaction costs: Card payment processing fees can erode profit margins, necessitating careful consideration of pricing strategies to maintain profitability.
  • Cancellation management: Handling cancellations and refunds for recurring card payments can be complex and time-consuming, requiring diligent management to ensure compliance and customer satisfaction.

Direct Debits: Your profit margin booster

Now, let’s explore the world of Direct Debit – your secret weapon for optimising profit margins and streamlining operations. 

What is a Direct Debit?

A Direct Debit is only operated by banks in the UK, serving as the middleman for payment processing and security. This arrangement means that your business and your customers have added protection, which many businesses see as a huge benefit.

What are the benefits of Direct Debit?

  • Predictable cash flow: Direct Debits offer a stable and predictable revenue stream, allowing you to forecast and plan confidently for the future.
  • Cost-efficient transactions: Enjoy lower transaction fees compared to card payments, maximising your profit margins and improving overall financial performance.
  • Automated renewals: Say goodbye to manual intervention – Direct Debits renew automatically, freeing up your time to focus on growing your business and delighting customers.
  • Enhanced security: Direct Debits offer a secure payment method, minimising the risk of fraud and instilling trust and confidence in both you and your customers.

Like many things, Direct Debits also present some challenges:

  • Dependency on banking infrastructure: Direct Debits are susceptible to delays or failures caused by banking system issues, posing challenges for cash flow management and operational efficiency.
  • Limited customer reach: Some customers may prefer card payments over Direct Debits, potentially reducing your market reach and impacting revenue potential.
  • Authorisation complexity: Setting up Direct Debits may involve additional paperwork and verification steps, requiring meticulous attention to detail to ensure compliance and accuracy.
  • Cancellation management: Managing cancellations and refunds for Direct Debits requires adherence to strict regulations and procedures. Direct Debits are largely UK-based and outside of the UK, there’s no jurisdiction. It’s a method that is heavily merchant-controlled so as a business, you don’t have much control over it. If a payment has failed, your business will only be alerted a few days later. 

Making informed choices

As a business navigating the world of recurring payments, understanding the differences between each payment method is essential for maximising revenue and optimising operational efficiency. With many large businesses already utilising recurring card payments, it’s evident that this method offers significant advantages.

By embracing recurring card payments, you not only benefit from the stability they provide but also leverage the trust and familiarity associated with their widespread use. While direct debits may offer cost efficiency, the benefits of recurring card payments, particularly in terms of customer trust and convenience, often outweigh those of direct debits.

At Truevo, we understand the importance of offering a stress-free payment solution that provides complete flexibility to your customers. With our Subscription Billing service, you can confidently embrace the opportunities that recurring payments offer. By aligning your payment strategy with the preferences of your customers and the goals of your business, you can embark on a journey to prosperity with determination and confidence.

Need a helping hand with recurring payments? Reach out to our friendly team of experts at Truevo, and let us guide you toward success.

Disclaimer: This content has been written for informational purposes only. It should not be construed as legal or business advice.

Nick Dobson
Nick Dobson
Head of Sales at Truevo Payments
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Disclaimer: This content has been written for informational purposes only. It should not be construed as legal or business advice.

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