What Are Direct Debit Dishonours and How Can You Reduce Them?

As a business owner, you’re always looking for ways to keep your customers happy. Offering direct debit payments is a great way to do that. 

Recurring direct debits are convenient for everybody. Your customers don’t have to worry about keeping on top of their bills, and you don’t have to spend time and money chasing late or missing payments!

They’re also cost effective, and with PayChoice, your customers can split larger bills up into more manageable pieces. 

There can, however, be some unexpected costs, for both you and your customers. While direct debits are less likely to fail than other payment methods (like credit cards), there may be times that payments don’t come through as you expected. This makes it harder to manage your cashflow, and can result in unhappy customers if they incur fees. 

Understanding how and why direct debits in Australia fail can help you reduce their impact on your customer base and your bottom line. 

What are direct debit dishonours and why do they happen?  

If you offer your customers the option of paying you through a recurring direct debit, there will likely be times a payment doesn’t successfully go through. When this happens, your customer may be charged a direct debit dishonour fee by their bank.

The most common reason direct debit dishonours occur is that your customer doesn’t have enough money in their account to cover the charge. They can also occur if your customer’s banking details have changed or if they’ve closed their account. 

How common are direct debit dishonours and how much do they cost you and your customers?

Globally, direct debit payments fail on average 6.5% of the time. While this is lower than the failure rate for credit cards (7.9%) or digital wallet payments (11.5%), it’s still something you need to carefully manage as part of your overall business strategy. 

How often it happens to your customers will depend on the type of business you own and who your customer base is. The higher the recurring payment, the more likely the direct debit is to fail. 

In Australia, direct debit dishonour fees can cost your customer anywhere from $10 to $35.

For you, not getting paid on time is annoying, and makes it harder to manage your cashflow. And while you won’t be charged as a result of your customer’s direct debit dishonour, it could still end up costing your business money. 

Customers really don’t like facing unexpected costs (obviously). Incurring direct debit dishonour fees because of your business creates bad will and may make them hesitant to continue using your product or service. 

Direct debt dishonours can also mean you lose happy customers. It’s estimated that up to 30% of churn is involuntary. This means that up to 30% of the customers you lose each month could be leaving not because they’re unhappy with your product or service, but because their method of payment has failed. 

That’s a big statistic!

When you’re losing customers, you’re losing revenue. And it can be up to 25 times more expensive to attract a new customer than to hold on to one you already have. 

How do you fix and reduce direct debit dishonours? 

The good news is that you don’t need to lose customers over direct debit dishonours. Clear communication and excellent customer service are the keys to establishing a seamless payment collection process. 

First, make sure that your customers are always aware of when you’ll be taking payment from them. Send an email or SMS text message a couple of days before the direct debit is due to come out of their account. This means they’re not taken off guard by the payment and can pre-emptively fix any issues that might result in direct debit dishonours. 

If a direct debit does fail, retry the payment a couple of days later. A single retry can reduce your failed payment rate by up to 35%.

Keep your customer in the loop about what’s going on with their direct debit. Let them know you tried to collect a payment from them and that it failed, and provide the date you’ll be trying again. This gives them time to move enough money into the right account or update the direct debit information they’ve given you. 

If the second attempt also fails, you may wish to continue trying to collect payment from them. Make sure your communication is clear. Let your customer know how much the direct debit is for and give them a heads up each time you retry to collect payment. 

One of the major benefits of direct debit payments is the flexibility they offer your customers. If you have customers whose direct debits are regularly failing, work with them to find a better way of collecting payment to avoid dishonours. This could mean changing their payment date to occur right after they’ve been paid or taking the payment from a different account. 

The Bottom Line 

You’ve worked hard to build a business you’re proud of and you want your customers to have the best experience possible with you. A seamless method for collecting payments and avoiding direct debit dishonours can help you manage your cashflow and keep your customers happy. 

By providing clear communication about your direct debit payments and retrying after failed attempts, you can reduce churn, retain your customers, and maintain your revenue stream.

Save money with PayChoice.

At PayChoice we help you get paid faster, lower your costs and streamline your business. Not only are PayChoice’s dishonour fees much lower than competitors, our direct debit services have much more flexibility and features.

You’re also able to access our other services like credit card transactions, real-time payments and other solutions so you all your payment needs are in one place.

They cherry on top is we’re a 100% Australian owned and operated company that provides same-day customer support, so you’ve never left feeling ghosted! To find out how much you could save and how your business could improve, click the button to contact us today.