Are direct debits the way forward?

There has been a long-standing debate between the use of direct debit and standing order rental payments, with agents liking the flexibility and control of direct debits, while tenants enjoy having peace of mind knowing their rent payments are taken care of. However, agents worry about having to pay the Direct Debit back if the tenant raises a claim and the tenant worries about handing over control. But, is this myth or fact?  

Direct comparison

Let's begin by comparing the two methods. As outlined simply by the banking platform, Modulr (2020), with a Standing Order, you can only withdraw a fixed amount and tenants must sign into their bank accounts to set one up. 

Pros

Preferred by tenants: Often preferred by tenants as they can only be charged a fixed amount, whereas Direct Debit allows any or variable amounts to be charged.

Cons

Reliance on manual reference input: Reliant on tenants to remember to manually set one up and include a reference code to allow letting agents to reconcile.

Poor user journey: Can lead to inferior customer experience as tenants need to leave the app or website and visit their online banking portal to set up a standing order.

No notice cancellation: Landlords and agents also don't receive a technical confirmation when tenants cancel a standing order.

Direct Debits however offer much more flexibility as once a Direct Debit mandate has been submitted and approved, the actual amounts and frequency can fluctuate.

Pros

Flexibility: Direct Debits provide more flexibility than standing orders so tenants forgetting their reference number becomes less of a problem.

Customer user experience: Direct Debits can be setup fully within the context of a website or mobile app provided by the letting agent, there is no need for the tenant to navigate away to their bank account to set up a standing order.

Simplified reconciliation and more data control: For example, invoice or tenant reference numbers can be easily captured and mandated for Direct Debit when setting up the mandate, whereas tenants can forget or incorrectly type these when setting up a standing order.

Cons

Indemnity claims from Direct Debit: There is a potential misuse of the Direct Debit Guarantee, resulting in indemnity claims.

The Little Bacs Guide to Promoting Direct Debit 

As mentioned previously, there is still a divide between many landlords and tenants between their preferred payment methods, with the agent stuck in the middle. With this debate in mind, it is therefore fundamental for agents to ensure that they promote the advanced benefits for the tenant to pay via Direct Debit. 

An excellent tool in which to do this successfully is The Little Bacs Guide to Promoting Direct Debits (Bacs 2020). Within this guide, there is advice about how to promote Direct Debits, how to manage your campaign, which media tools are available, as well as clear details regarding the benefits of Direct Debits. 

Payments via LettsPay 

As outlined by Bacs (2020), Direct Debit payments offer the following benefits; 

• Improved cash flow - Switching customers to Direct Debit means you can guarantee the timing of incoming payments, ensuring consistent and predictable cash flow. 

• Reduced administration time and cost - Direct Debit means you don’t have to spend time issuing reminders and chasing payments. 

• No more lost or delayed payments - Payments can be difficult to track, can easily go astray or be delayed. With Direct Debit you receive the payment on time, every time.

• Business planning - Predictable payments not only improve cash flow but also enable you to better plan business resources such as staffing and other expenditure. 

• Simpler and more convenient for customers - 77% of customers are positively disposed to Direct Debit and for 62% of customers, it is their preferred payment method. 

There is no right or wrong answer to this, it is just personal preference, what is best for the agent, landlord and tenant. However, LettsPay offers the flexibility for the agent and tenant to choose which they prefer. Their system has been designed alongside experienced agents, to ensure that accounting is easier and more seamless. Both the tenant and the agent hold their own accounts within the LettsPay platform, allowing payments to be made quickly and easily for all involved. By paying via Direct Debit, the tenant no longer needs to worry about forgetting to make a payment. LettsPay notifies them of any extra charges, complying with the Bacs regulations. Accounts can be viewed in real-time, ensuring that everyone has a clear and accurate picture. Communication is therefore easier, and the stress is taken out of rent collection. 

LettsPay not only offer Direct Debit payments - tenants are still able to pay via standing order, should they wish to do so. Additional payments can then be made via bank transfer, or by card, meaning the third party is then able to pay, if this is needed. LettsPay is a flexible platform to ensure that individual needs are met. 

The accounting system allows payments to suppliers to be made directly from the landlord's account, meaning that the amount due to the landlord at the end of the month, is accurate. Any charges are automatically calculated, alleviating the need for extra manpower.

In summary, with the movement towards Direct Debits becoming more popular, LettsPay can offer an accounting solution to ease the pressure for letting agents. Their flexibility means that traditional standing order payments can still be made, whilst those changing to Direct Debit can feel more secure and in control. 

References 

• Bacs (2020), Date accessed (17.09.2020) [www] 

• https://www.bacs.co.uk/Services/bacsschemes/MarketingTheSchemes/DirectDebitM arketingCampaignToolkit/Pages/GuideToPromotingDirectDebit.aspx 

• Modulr (2020), Date accessed (17.09.2020), [www] 

• https://www.modulrfinance.com/blog/a-landlords-letting-agents-guide-to-rent-payments