Pat Phelan
Chief Customer Officer and Managing Director, UK & Ireland, GoCardless
Small businesses can streamline their payment collection through solutions that offer a direct approach to collecting their income from customers, reducing late and failed payments.
When running a small business, it can often seem as though painful processes, like spending countless hours chasing unpaid invoices are just part of the package. This doesn’t have to be the case.
Misaligned payment collection hinders business
There are many well-known and common ways to collect payments, but I’ve repeatedly seen businesses choose ones that don’t align with their business model or customer’s preferences.
This poor fit is one of the biggest contributors to payment headaches, leaving businesses needing to invest time and resources that could be better used elsewhere. While it can be awkward to discuss money matters, 73% of small business owners believe that failing to openly talk about money is holding their business back.
Costly inefficiencies in payment collection
There are a lot of different factors to consider when deciding how to collect payments. Manual bank transfers, cheques and one-off card payments are all forms of push payments that rely on the payer to ‘push’ the funds to you — giving them control of when and how much to pay.
If you have a subscription-based business or manage repeat orders, these methods make it hard to predict cash flow and limit how far into the future you can plan. Card payments are particularly problematic because even when automated or set up for recurring payments, they have expiry dates and a propensity for getting lost in the back of taxis, which can result in some payers involuntarily churning. There’s a big connection between payment methods and churn, with average annual churn rates being at 16% for PayPal, 14% for credit cards and just 4% for Direct Debit.*
In 2022, some 52% of small businesses experienced late payments while sole traders and SMEs can spend 19–31% of their weekly work time dealing with payment admin due to inefficient ways to collect and manage their money. All of these ‘hidden costs’ quickly add up, and trying to salvage a failed payment can end up costing between 11–15% of the value of the recovered funds.
45% of payers will abandon a purchase
if required to manually enter details.
Automated bank payments for businesses
While all payment methods have associated costs, if you’re collecting recurring payments, then automated bank payments offer a competitive total cost of ownership. Take Direct Debit as a primary example. It cuts out manual processes for both you and your customers as it only requires one-time approval; bank accounts don’t expire or get lost; and they’re accessible to your customer base.
It is also a ‘pull payment,’ which means your business is pulling the money from your customers’ accounts. This gives you greater control over payment predictability and the added peace of mind knowing exactly when and how much money will be coming in each month. They also have the f lexibility to amend the amount or frequency of collections, meaning you don’t need to worry about delays in getting paid if you make changes to your pricing or products offered.
Streamlining payments collection
You might wonder how changing the way you collect payments will impact your customers, but a recent GoCardless and YouGov payer preference survey found that 45% of payers will abandon a purchase if required to manually enter details. A further 69% will abandon it if the checkout process feels too complex.
Switching to Direct Debit could help you win new customers as it’s well-known and trusted, and it has the benefit that customers can ‘set and forget.’ These details in the checkout process can all add up to give you a competitive edge.
Robust payment strategy
Your payments are the lifeblood of your business. While it can feel like a daunting task, evaluating how you collect payments and taking the time to compare the different methods will help you to save more time and money now so that you can hopefully grow in the future.
