Direct Debit for Small Business: Easy Setup, Fast Payments

Published Monday 22 December 2025

Table of contents

• What is direct debit?
• Benefits of direct debit for small business
• How does direct debit work?
• How long does a direct debit take?
• Direct debit collection options
• Direct debit costs for small business
• Easy direct debit for small business
• How to set up direct debit
• What about direct debit indemnity?
• Direct debit services for small businesses
• Streamline your business payments with direct debit
• FAQs on direct debit for small business

Key takeaways

• Implement direct debit to transform your cash flow by collecting payments automatically within five working days, eliminating the 30+ day wait times typical with traditional invoicing.
• Choose between setting up direct debit directly through your bank or using a third-party provider, with modern providers offering free setup and transaction fees between 20 cents and $2 per payment.
• Obtain proper customer authorisation through a signed direct debit mandate and provide advance payment notifications to comply with regulatory requirements and protect your business.
• Utilise direct debit for both recurring payments like subscriptions and one-off invoices, while avoiding very large transactions due to customer dispute rights and refund obligations.

What is direct debit?

Direct debit is an automated payment system that lets you collect money directly from your customer's bank account. You notify customers in advance about payment amounts and dates, then payments happen automatically without any action required from them.

Benefits of direct debit for small business

Direct debit transforms cash flow by eliminating payment delays and admin work. While invoices can take 30+ days to pay, direct debit payments are almost instant.

Key benefits include:

• Faster payments: Money arrives as soon as you send the bill
• Reduced admin: Businesses save up to a day per week on payment tracking
• Customer convenience: No need for customers to remember or approve payments
• Predictable cash flow: Automated payments improve financial planning

Direct debit is ideal for:

• subscriptions for things like gym memberships or software
• regular invoices such as monthly retainers (for fixed or variable amounts)
• accepting instalments to help customers spread out their costs
• collecting rent from tenants

How does direct debit work?

Direct debit works through a simple three-step process that automates customer payments:

1. Customer authorisation: Your customer completes a direct debit mandate (also called a direct debit instruction) giving you permission to collect payments
2. Payment notification: You send advance notice of upcoming payments, including amounts and dates
3. Automatic collection: Your direct debit provider collects payments automatically on the due date, so your customer does not need to do anything

How long does a direct debit take?

Direct debit payments take up to five working days to clear. This is slower than other online payment methods because you pull money from your customer's account instead of your customer sending it to you.

Direct debit collection options

Two main options exist for implementing direct debit, each with different complexity levels and costs:

• Bank setup: Work directly with your bank to establish direct debit services. This approach varies in difficulty depending on your customer locations and may require lengthy negotiations in some countries.
• Third-party provider: Use a specialist direct debit service that handles the technical setup. Service levels and fees vary significantly, so compare multiple providers before choosing.

Direct debit costs for small business

Understanding the costs helps you choose the right direct debit service for your business. Most providers have simple pricing, often with no setup fees to get you started.

Common costs include:

• A small transaction fee, which might be a fixed amount or a percentage of the payment value.
• A monthly fee for the service, though some providers offer plans with no monthly cost.

It's a good idea to compare a few options to find a pricing structure that fits your business needs and payment volume.

Easy direct debit for small business

Modern direct debit is now affordable for small businesses thanks to online technologies that have streamlined what was once a complex, expensive process. And while a latest cash use survey from the Reserve Bank of New Zealand shows 57% of people still use cash for some transactions, offering automated payment options is key to meeting diverse customer preferences.

Current costs are:

• Setup: Free with most providers
• Transaction fees: Between 20 cents and $2 per payment

How to set up direct debit

Setting up direct debit through a provider takes five simple steps that get you collecting payments quickly:

1. Choose your direct debit provider: Set up your account through their website (or through your online accounting software).
2. Add customers and invite them to pay through direct debit: They'll be emailed a direct debit form. Once they fill it out, you can take payments from their bank.
3. Set up your payments: You can use it to collect recurring or one-off bills.
4. Your customer is automatically notified before a payment is collected: The notice period is regulated so make sure your provider complies.
5. The payment completes: The payment clears in your account, minus the provider's fee. The fee depends on the size of the bill but should not be more than about $2.

Manage all your payments online

Online direct debit management gives you complete control over your payment system from any device.

Management features include:

• Account oversight: View and manage all direct debit accounts in one dashboard
• Payment tracking: Monitor transaction status and payment history
• Automated reconciliation: Sync payments directly with accounting software for streamlined bookkeeping

What about direct debit indemnity?

Direct debit indemnity protects customers by giving them refund rights when disputing a payment, though disputes are rare.

Key facts about disputes:

• Customer rights: Customers can cancel transactions and request refunds
• Refund obligations: You'll typically need to provide refunds when requested, even if you disagree
• Transaction limits: Avoid using direct debit for very large payments due to dispute risks
• Low dispute rates: Only 1 in 500 direct debit transactions gets disputed

Direct debit services for small businesses

Direct debit providers for small businesses are less common than other payment services, but reliable options exist and the market is growing.

Established providers include:

• GoCardless: Integrates with popular accounting software including Xero
• uCollect: Offers direct debit services with accounting software connections

Both providers offer small business-friendly pricing and easy integration with existing financial systems.

Streamline your business payments with direct debit

Adopting direct debit can transform your payment collection, giving you more predictable cash flow and freeing up valuable time. By automating payments, you spend less time chasing invoices and more time focusing on what you love. When you connect your direct debit provider with your accounting software, you get a real-time view of your financials.

See how you can manage your business, not your books, when you try Xero for free.

FAQs on direct debit for small business

Here are answers to a few common questions about using direct debit.

What are the rules for direct debits in New Zealand?

In New Zealand, you must have a signed authorisation form, or mandate, from your customer before you can collect payments and notify them in advance of each payment. These rules are part of a broader regulatory framework, with the Reserve Bank of New Zealand ensuring financial institutions meet obligations under legislation like the Anti-Money Laundering and Countering Financing of Terrorism Act 2009.

Can I use direct debit for one-off payments?

Yes, absolutely. While it's perfect for recurring subscriptions or retainers, direct debit is also a great, low-cost way to collect one-off payments for individual invoices.

What happens if a customer disputes a direct debit?

Customers have the right to dispute a payment and request a refund through their bank. This is a key consumer protection. While disputes are uncommon, your direct debit provider typically manages the process and guides you through each step.

How does direct debit compare to other payment methods for costs?

Direct debit fees are often lower than credit card processing fees, particularly for larger transaction amounts. This can make it a more cost-effective choice for your business, helping you keep more of your revenue.