Direct Debits

Benefits of Direct Debits

There are many benefits that come with using direct debits, but the main benefit is no more late rent payments and improved cash flow! Direct debits are a classic example of putting the work in up front then reaping the benefits for the duration of the tenancy.

Have you ever had to chase or remind tenants about rent payments? Once a direct debit is set up the money is taken from the tenants account automatically on the same day every month. If a direct debit is canceled you will be informed as soon as it happens.

Are you tired of having to reconcile rent payments through your accounting software? Some direct debit providers can integrate with your accounting software and reconcile rent payments automatically.

Do you give your tenants a rent review and they continue to pay the previous amount? Direct debit payments and dates can be altered without tenants authorisation.

How Direct Debits Work

In order to set up a direct debit you need a SUN (Service User Number). These can be attained through your bank if you meet certain criteria:

You can prove you will enforce the direct debit scheme policies
You have adequate reserves to be able to refund customers under the direct debit guarantee
You can indemnify your bank for the refunds

It can be difficult to attain a SUN from your bank unless the property is operated by a business that’s less than 3 years old or has less than £1 million turnover.

There are 2 options if you want to use direct debits but aren’t eligible for you own SUN:

Using a BACS-Approved Bureau (BAB) – They will set you up with your own personal SUN but retain ownership of the SUN, they will take payment then reimburse you.
Using a Payment Institution – These institutes have their own SUN that they will use to collect payments then reimburse you.

Using a Bacs-Approved Bureau (BAB)

Having your own personal SUN means you have more control over how tenants sign up for the direct debit and what they see when signing up in terms of branding. There is usually a fee to set up an account with a BAB (£100-500), some charge a monthly fee as well or as opposed to a set up fee. They typically charge less per transaction than a Payment Institution, BUT they also charge (£4-7) for BACS files to be submitted. A BACS file needs to be submitted for every date you receive a payment on. If you receive all your rent collections on the same day of the month from all your tenants OR if you have many tenants and receive multiple payments every day then using a BAB is the way to go.

Using a Payment Institution

Using a payment institutions SUN for your rent collections means you have less control over how tenants can sign up and the branding they see when they do so (the payment institutions name will appear on tenants bank statements). There aren’t usually any account set up fees or ongoing monthly fees. They typically just charge a percentage of the payment amount per transaction (1-2%) and there is usually a cap for their fee. If you receive rent payments from different tenants on different dates of the month then this is a good option for you.

Providers

GoCardless

These are probably the biggest Payment Institution out there
They Charge 1%+20p per transaction capped at £4
Tenants can only sign up online
GoCardless appears on tenants bank statements
We use GoCardless

EasiPay

A lesser known Bacs-Approved Bureau
~£100-150 account set up
No ongoing monthly fees
£1 per new payer
£4 per BACS file – for every date you receive a payment
40p per transaction
£5.75 if a payment bounces
Branded sign up online, over the phone or in person (paper)
Your businesses name on tenants bank statements

FastPay

A big name Bacs-Approved Bureau
~£300-350 account set up
No ongoing monthly fees
£1.50 per new payer
£5 per BACS file – for every date you receive a payment
40p per transaction
75p if a payment bounces
Branded sign up online, over the phone or in person (paper)
Your businesses name on tenants bank statements

Read our guide on Ending a Tenancy

Does your tenant want to move out? Have a read of our guide on Ending a Tenancy, it explains how a tenancy can be formally or informally ended.

Ending a Tenancy

You can also see all of our guides for landlords and much more in our Library.

Library