Improving Collection Rates with Direct Debits

The use of Direct Debits to collect payments such as rent is rising.  In the past six years we have seen a huge growth (282.35%) in the use of Direct Debits across all our clients using our payment services.  To collect this data, we looked at 520 clients including Housing Associations, NHS, Local Authorities, Central Government, ALMOs, debt collectors and Credit Unions.

The reason for the increased popularity in the use of Direct Debits, particularly in the housing sector, is largely because they offer a convenient payment method for both Housing Associations and for tenants alike.  Users don’t have to remember to make a manual payment and setting up a Direct Debit mandate is a trusted process, it’s straight forward and secure. For the housing association, the process is automated, freeing-up staff time to focus on less repetitive tasks.

To improve the collection rates offering flexible payment frequencies for Direct Debits is key.   Employing the facility to collect automated payments on any working day of the month, means users can elect to time Direct Debits for after they have been paid or Universal Credit has been granted for example.  This can be a significant help for tenants when it comes to budgeting as rent will be one of their largest, if not their largest outgoing.

Further, from a survey we undertook last year looking at Social Renters, we found that the majority of tenants preferred to pay rent on a weekly basis (22.1%) with 9.9% on a fortnightly basis and 7.6% four-weekly.   By employing flexibility on payment frequencies and being able to collect automated payments on any working day of the month, it means people are less likely to fall into arrears with payments.  From the housing association’s perspective, resources and time spent chasing failed payments can also be saved.

One challenge for organisations implementing Direct Debits as a payment method for service users, is when they remain unpaid.  From our research we have found that December and January represent the times of the year when Direct Debit payments are most likely to fail so this should also be taken into consideration.

The functionality to re-present the Direct Debit for payment between seven -14 days after the original request can also help reduce overall unpaid Direct Debits.   It is possible that issuing advance payment notifications to clients advising them a payment is due can reduce unpaid transactions too.

Overall, the use of Direct Debits for multiple payments are increasing and this is only set to rise.   However, the cost of the resources needed to collect failed payments can be high.  By implementing any day payment, using re-presentation and advance notification, failed payments can be minimized.

As well as minimising resources needed to chase payments, this approach protects tenants from falling into areas and supports their rights to remain in their homes. Working closely with your payment provider will enable a flexible approach to implementing Direct Debits for the overall benefit of tenants.

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By Rob McCloy Head of Sales (North), allpay