Guide on direct debit and how it works in Australia

Setting up direct debits can help your business to get paid on time without manually chasing invoices every month. This offers quite a few benefits, including steadier cash flow and less admin to sort, but it’s not always clear for small businesses how to get a ‘mandate’ from customers to take these regular payments.

In this guide, we’ll explain what a direct debit is, how they work in Australia, and how to get them set up with providers, plus detail some of the costs involved.

What is a direct debit?

A direct debit is an automatic payment where a customer lets a business withdraw money from their bank account using their BSB and account number. Unlike a standard bank transfer, where all the details are manually entered and money sent, the business triggers the payment with the customer’s permission.

In Australia, direct debits run through the Bulk Electronic Clearing System (BECS), which the Australian Payments Network oversees. It’s essentially the backbone for account-to-account (A2A) payments – the system banks and businesses rely on when money needs to move securely between local accounts¹.

If you’ve ever set up recurring or scheduled payments, these are likely to have been direct debits. It’s commonly used for things like utilities and monthly streaming subscriptions, removing the need for customers to manually pay bills.

For businesses, direct debits offer structure and predictability by automating collections, reducing the chances of missed payments, which can hit cash flow.

Direct debit vs direct credit

With a direct credit, the payment flow is reversed, with the business sending or ‘pushing’ money to the recipient’s account using their bank details. Direct credits are often used to pay salaries and issue refunds, or make payments to other businesses. The recipient of a direct credit could be a customer, employee, or supplier.

Common uses of direct debit payments

Direct debits make the payment process much more efficient and are widely used by businesses and consumers.

Business uses:

• Subscription billing (payment gateways, accounting software)
• Invoice collections
• Membership fees
• Installment plans when paying for large purchases on credit
• Ongoing service retainers
• Utility and broadband billing
• Property management payments

Consumer uses:

• Electricity and gas bills
• Mortgage repayments
• Streaming subscriptions
• Broadband and phone plans
• Council tax
• Insurance premiums
• Charitable donations

How does direct debit work in Australia

The process for direct debits is very similar in Australia compared to other countries like the UK or the US, with the main difference being that they use the rules and infrastructure of the BECS network. Here’s how it works, step-by-step:

1. Customer authorisation - the customer starts by setting up a direct debit, submitting their account details with the business or service provider via an online payment agreement or paper form.
2. Business request - the business then sends a request to take the payment through the BECS network on the agreed date.
3. Bank verification - the payer’s bank now checks that the account can fulfill the request, i.e., it’s active and has enough funds available.
4. Funds transferred - next, the money moves through the banking network to the business’s bank account
5. Payment settlement - finally, with all the processing done and clearing complete, the funds are deposited and made available to the business.

This is a back-and-forth exchange that takes very little time in reality, but the payment still needs to move through banking and clearing systems before it fully settles in the recipient’s account.

How long does a direct debit take?

A direct debit takes around 1-3 business days to process and settle in Australia. While the money may leave your account on a particular date, the processing that comes after (bank authorisation, clearing, etc.) can extend the time it takes to clear and reach the recipient.

Factors that affect direct debit duration

The exact time it takes for a direct debit to settle depends on a few key factors.

• Processing cut-off time - banks often have set daily deadlines for processing payments, e.g., before 9 pm, after which the request is dealt with the next day.
• Holidays and weekends - payments are usually processed only on business days (Monday to Friday).
• New payees - if you’re sending a direct debit to a new recipient, it may take slightly longer due to security checks and verification steps.
• Networks - some banking networks settle transactions faster than others.

How to set up direct debit for your business

Direct debits are an efficient way to automate recurring payments for businesses.

Instead of relying on customers to manually pay invoices or services, you can schedule payments to be taken automatically on agreed dates, so you don’t have to worry about chasing money you’re owed. It also improves cash flow, giving you a clearer view of your finances, which is better for forecasting and decision making, while reducing admin.

To start taking direct debits, your business will need a direct debit provider or payment platform that supports BECS direct debit payments. These third-party platforms facilitate the payments, sorting the infrastructure and authorisations to make direct debits work.

Here’s how to set up a direct debit for your Australian business:

1. Choose a direct debit provider

Start by researching a few potential providers, like GoCardless or Ezidebit, that support direct debit payments. Many of these integrate with accounting and invoicing to automate the whole payment process. When comparing options, look closely at transaction fees, integrations, customer payment experience, and local support.

2. Invite customers to authorise direct debit

There are a few ways you can get customers to authorise direct debits. You can include it as an option at an online checkout, for example, or by sending them a payment form via email. Customers will usually provide their account name, BSB, and account number along with payment authorisation during this process.

3. Schedule and request payments

Now that you’ve been given the green light to take payments, you can start scheduling the direct debits through your provider platform for things like recurring subscriptions and ongoing invoices. You’ll also have to give customers a heads-up that payments will be taken, usually a few days beforehand.

4. Track and reconcile direct debits

Your provider is likely to have a dashboard where you can keep track of all your direct debits and flag any failed transactions. This makes it easier to manage cash flow and reconcile everything with your accounting software.

How much does a direct debit cost a business

There are a few different fee types you’ll need to factor in when taking direct debits from customers. These costs will vary depending on the provider you choose and how often you take payments.

Here’s a breakdown of the common direct debit costs:

For a traditional banking setup, it can be expensive. For example, with ANZ, there is a $200 AUD + GST establishment fee for using a direct debit facility². But the upfront costs are typically much lower with third-party providers like GoCardless. These often use a pay-as-you-go model with per-transaction charges and optional monthly subscriptions.

Wise Business: For direct debits on global business payments

Traditional business accounts may seldom restrict your automated payments to local currency accounts, causing unnecessary hurdles if your operations span across borders.

A Wise Business account helps solve this friction by allowing you to set up direct debits in multiple global currencies, including AUD, USD, GBP, EUR, and CAD.

In addition, businesses have the flexibility to choose if they would want to automatically convert the missing amount from other currencies using the lowest possible fee to ensure that the automated payments run smoothly. This ensures that direct debit payments occur even if there is no balance in that specific currency.

How to set up direct debits with Wise Business

Setting up an automated payment from your account is simple, digital, and typically takes just a few days to finalize.

• Step 1: Locate your account details. Log into your Wise Business dashboard, navigate to Payments, and select the currency you need to pay with to view your local account details (such as a BSB and account number for AUD).
• Step 2: Share details with the merchant. Provide these account details to the company you want to pay. They will use this information to create a payment agreement online, over the phone, or via a digital form.
• Step 3: Track the authorization. The merchant will process the setup through their local banking network, which usually takes 1 to 3 business days depending on the currency. Wise will send you an email confirmation the moment the direct debit is successfully active.

Managing direct debit payments

Maintaining complete visibility over your business expenses is vital, so Wise gives you the tools to track or stop your payments instantly from your dashboard.

• To view active payments: Open the Wise Business app or website, head to Payments, choose your specific currency, and select Direct Debits to see a complete list of your current automated agreements.
• To cancel a payment: If you need to stop a recurring bill, simply go to Payments, select Direct Debits, choose the merchant you wish to remove, and click Cancel Direct Debit.

Important note: To ensure a payment does not leave your account, you must cancel the direct debit at least 1 working day before the next scheduled payment date.

Getting started with Wise Business

Expanding a business globally opens up exciting opportunities, but also new challenges like receiving payments across borders. Hidden foreign transaction fees and hefty currency conversions involved with international payments can eat into your profits and time.

Wise Business serves as a cost-effective solution where you can receive money from around the world at the speed and price of local payments.

Transform the way you receive payments with Wise Business:

• One-time fee of 65 AUD for local account details in 8+ currencies, including AUD, NZD, USD, and more—no recurring fees
• One account to hold, send, and convert money with no hidden fees or exchange rate markups
• Create and send professional invoices directly to your customers through Wise Business
• Create payment links to request money in specific currencies
• Seamlessly receive payments from customers, online sales, or PSPs like Stripe and Amazon.
• Wise is safe and secure - Trusted by 13 million people and counting

Sign up for the Wise Business account! 🚀

This general advice does not take into account your objectives, financial circumstances or needs and you should consider if it is appropriate for you.

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Direct debit payment FAQs

1. How to cancel a direct debit?
In Australia, it’s generally recommended to contact the business first to notify them that you want to cancel, and then let the bank know. Some providers might need advance notice, ie, 3 days before the next billing date, to prevent money from going out.

2. What happens if a direct debit payment fails in Australia?
A direct debit payment usually fails due to insufficient funds or incorrect account details. When this happens, the business may try to take the payment again a couple of days later, while contacting the customer to either update their details or use an alternative payment method.

3. How much notice does a business need to give before taking a direct debit?
You’ll need to provide advance notice before debiting a customer’s account, typically around 3 days before the payment date. However, the exact notice period will depend on the agreement and provider terms. Most businesses provide 14+ days' notice if there are any changes to payment amounts or schedules.

4. Is direct debit safe for customers to use?
Yes, direct debit is considered safe and secure as payments pass through regulated banking systems and require explicit permission from the customer to be taken. Customers are also protected by direct debit guarantees and dispute procedures in most cases.

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Sources:

1. RBA gov au - BECS
2. ANZ - Business direct debits
3. Bank of Sydney - Direct debit request service agreement