Do you collect your rents via Direct Debit or Standing order?

Do you collect your rents via Direct Debit or Standing order?

16:45 PM, 12th June 2024, About 2 days ago 12

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As a landlord, ensuring timely and reliable rent collection is crucial to maintaining a steady cash flow and reducing administrative headaches. The method you choose for collecting rent can significantly impact both your efficiency and your tenants’ satisfaction. In the UK, landlords have several options, including Standing Orders and Direct Debits. Utilising a specialised Direct Debit service offers distinct advantages. In this article, we’ll explore the benefits of Direct Debits over Standing Orders and why using a Direct Debit service is the superior choice for landlords.

Standing Orders vs. Direct Debits

Standing Orders and Direct Debits are both popular methods for collecting rent, but they have key differences that affect landlords and tenants.

Control and Flexibility

  • Direct Debit: Landlords initiate the payment, allowing for easy adjustments to the amount and payment dates. This flexibility is vital for handling rent increases or correcting errors.
  • Standing Orders: Tenants control the payment setup and adjustments. Any changes require tenant action, which can delay adjustments and payments.

Risk of Late Payments

  • Direct Debit: Payments are landlord-initiated, reducing the risk of missed or late payments due to tenant oversight.
  • Standing Orders: Tenants might forget to set up or update payments, leading to inconsistencies and delays.

Administrative Burden

  • Direct Debit: Integrates with accounting software, automating payment reconciliation and reducing administrative workload.
  • Standing Orders: Requires manual verification of each payment, increasing the administrative burden.

Cash Flow Management

  • Direct Debit: Ensures predictable payments, aiding in cash flow planning.
  • Standing Orders: Variability in payments can disrupt cash flow management.

Tenant Relationship

  • Direct Debit: Reduces the need for reminders and follow-ups, fostering a smoother landlord-tenant relationship.
  • Standing Orders: Missed payments and frequent reminders can strain relationships.

Protection Under Direct Debit Guarantee

  • Direct Debit: Offers tenant protection under the Direct Debit Guarantee, providing immediate refunds for incorrect payments.
  • Standing Orders: Lacks a comparable guarantee, complicating issue resolution.

Why Use a Specialised Direct Debit Service?

While setting up Direct Debits directly through a bank is an option, using a specialised Direct Debit service offers numerous additional benefits:

Ease of Setup and Management

  • Specialised Service: Simplifies the setup process with minimal technical knowledge required. Handles all regulatory compliance and paperwork.
  • Own Bank: Often involves extensive paperwork and a lengthy approval process.

Automation and Integration

  • Specialised Service: Automates payments and integrates seamlessly with property management and accounting software, streamlining operations.
  • Own Bank: May lack comprehensive integration, requiring more manual intervention.

Advanced Features

  • Specialised Service: Offers features such as automated notifications, payment tracking, and retry mechanisms for failed payments.
  • Own Bank: Typically offers basic Direct Debit services without advanced features, limiting flexibility.

Cost-Effectiveness

  • Specialised Service: Charges a flat fee or small percentage per transaction, which is often more cost-effective, especially for landlords with multiple properties.
  • Own Bank: Can involve higher fees and potential hidden costs for adjustments.

Customer Support and Compliance

  • Specialised Service: Provides specialised support and ensures full compliance with Direct Debit regulations.
  • Own Bank: Support may not be as specialised, and compliance responsibilities may fall on the landlord.

Scalability

  • Specialised Service: Easily scalable, accommodating growing property portfolios without significant increases in administrative workload.
  • Own Bank: Managing an increasing number of Direct Debits can become cumbersome and resource-intensive.

Tenant Experience

  • Specialised Service: Offers a user-friendly experience for tenants, with easy sign-up processes and transparent communication.
  • Own Bank: Setting up Direct Debits can be more cumbersome for tenants, and communication may not be as clear.

Payment Security

  • Specialised Service: Employs robust security measures and is fully PCI DSS compliant, ensuring high standards of data security.
  • Own Bank: While secure, may require additional security considerations on the landlord’s part.

Conclusion

For UK landlords, the choice of rent collection method can significantly impact operational efficiency and tenant satisfaction. Direct Debits offer more control, flexibility, and reliability compared to Standing Orders. Furthermore, using a specialised Direct Debit service provides additional benefits such as ease of setup, advanced features, cost-effectiveness, and superior support. By choosing a specialised service, landlords can ensure a smoother, more efficient rent collection process, allowing them to focus on managing their properties and maintaining positive relationships with their tenants.

Ready to streamline your rent collection process?

If you decide to sign up and start using our recommended Direct Debit service both you and Property118 can each receive up to a £200 cash incentive

Furthermore, the service is free for you to trial for the first 90 days 🙂 


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Comments

Judith Wordsworth

10:09 AM, 12th June 2024, About 2 days ago

As a non Ltd landlord I have only ever been able to collect rents as Standing Orders.

Steve Masters

15:36 PM, 12th June 2024, About 2 days ago

Another advantage of Direct Debit over Standing Order is that tenants are likely to 'self reference'. If a tenant feels they are likely to strugle with the rent they are likely to decline to commit to DD however if they are confdent they can continue to manage the rent now and in the future then they are more likely to accept DD.

I've used DD in the past but found resistence from prospective tenants, even to good ones. I use an agency and find resistence from them too.

How do people insentivise for DD?

Kizzie

15:55 PM, 12th June 2024, About 2 days ago

DD as direct payment of variable service charge (s.18 LTA 87) must be held in a trust fund and tax chargeable on trustee. From 6 April 2024 tax in bank bldg society account no longer deducted at source.
Where income ie interest exceeds £500 it must now be reported and tax payable on full amount.
So ensure DDs paid direct into the trust fund under Section 42 LTA 87 and trust compliant with Trust Deed.

Mark Alexander - Founder of Property118

17:29 PM, 12th June 2024, About 2 days ago

Reply to the comment left by Kizzie at 12/06/2024 - 15:55
GoCardless deal with all the compliance

Mark Alexander - Founder of Property118

17:31 PM, 12th June 2024, About 2 days ago

Reply to the comment left by Judith Wordsworth at 12/06/2024 - 10:09
No problem if you use our recommended service provider

Mark Alexander - Founder of Property118

17:33 PM, 12th June 2024, About 2 days ago

Reply to the comment left by Steve Masters at 12/06/2024 - 15:36
The incentive for the tenant to agree to Direct Debit is their ability to rent the property. There is no shortage of rental demand.

Reluctant Landlord

17:58 PM, 12th June 2024, About 2 days ago

my AST states rent to be paid DD or by BACS payment. But lets face it,these days we are all just grateful if the rent gets paid and are happy to accept it by any means it is given. As long as it is trackable, the amount is confirmed and agreed by both sides and its paid on time, then I'll always accept it over refusing it!

Ryan Stevens

9:48 AM, 13th June 2024, About A day ago

I use GoCardless for my business, it is pretty good and lets you know by e-mail when a direct debit has failed, so that you can immediately contact the tenant.

Much cheaper than using agent rent collection and the money goes straight into your account.

Mark Alexander - Founder of Property118

9:52 AM, 13th June 2024, About A day ago

Reply to the comment left by Ryan Stevens at 13/06/2024 - 09:48
They also tell you if a Direct Debit is cancelled.

Also, banks charge people for failed Direct Debits, which is an incentive for tenants to ensure there are sufficient funds to pay. GoCardless also keep trying to collect payment every few days if payment fails due to insufficient funds.

Kat Scott

13:29 PM, 13th June 2024, About A day ago

Considering the article is the pros & cons of the options via a comparison of the two, it fails to mention that the DD option comes at costs. Or any other negatives of DDs
"4.5 Transaction fees means all fees payable by you to GoCardless for each transaction processed by GoCardless for you. Eligible Merchants in the United States, Germany and Austria will still be liable for Failure Fees and Chargeback Fees for unsuccessful transactions. Visit our pricing page for more information."
Min fee £4 general fees start at 1% + another fee.
The article should give all the key information so informed decisions can be made.
I once used a service like this, by another provider. They held on to my rent for days after receiving it, which impacted my cash flow. I believe this was to make more money on the overnight money markets. I got all sorts of reasons from the owner for the delay each month, he had a new excuse every time and that it would improve soon, but it never did & I took my business away.
If you are interested in this test the service within only one rent for a reasonable period. Also, ensure you read all the small print and all additional documentation. I had to hunt to find the fee info.

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