Direct Debits and Fundraising
This is a brief introduction to direct debits, which may be an effective way for your organisation to collect fundraising payments.
What is a Direct Debit?
A direct debit is an instruction from a donor to their bank or building society authorising an organisation to collect varying financial amounts from their account. In Ireland, direct debits are administered and governed by the Irish Retail Electronic Clearing Company, which is one of the companies that make up the Irish Payment Services Organisation. (www.ipso.ie)
Direct Debit or Standing Order?
The difference between direct debits and standing orders is essentially one of control. With direct debits, the receiving organisation is able to change the amount requested (subject to donor permission). Standing orders can only be amended by the donor. This means, for example, a charity can negotiate increased donations each year and amend the payment themselves rather than depending on the donor to contact their bank to make the necessary arrangements with a standing order.
For the charity, however, being able to accept Direct Debits can be expensive to set up and require the organisation to develop specific in-house systems. You will have to meet the required criteria to become a Direct Debit Originator (an organisation which can initiate direct debits). This will involve checks for integrity, financial standing and administrative capability.
For many organisations, promoting the use of standing orders is a more efficient way to recruit long-term committed givers without the costs associated with direct debits. However, the benefits of direct debit means the initial expense of setting up may well be outweighed by rewards in the long-term, providing a large number of donors use the scheme.
What are the Benefits of Direct Debits for a Charity?
- Increased cashflow - Knowing when payments will hit your bank account is of great help for planning expenditures.
- Less expensive - Credit card processing fees and the administrative costs of issuing invoices and chasing down past due cheques are far more expensive than direct debit.
- Improved customer retention - When customers take the time to physically review each bill, there is a greater chance of losing their business to changes in seasonal or economic conditions or perceptions beyond your control. Automatic payments reduce this phenomenon because customers must make a conscious effort to cancel payments.
There are two ways of utilising direct debits as a charity:
- Direct Debit Originator
- Payment Processing Agency
Charities can fundraise using Direct Debits either by becoming a Direct Debit Originator or using a Payment Processing Agency to accept Direct Debit on their behalf. The Charities Aid Foundation in the UK is an example of an agency able to process Direct Debits on the charity’s behalf – which can be especially useful for Irish charities fundraising in the UK.
If you want to introduce direct debit, the first thing to do is consult your bank or building society. (this is known as the Sponsoring Bank - but this has nothing to do with sponsorship in the fundraising sense). They will assess your financial standing and administrative capability.
Your bank should be able to advise you on the facilities needed and provide the Direct Debit Scheme Rules and procedural information necessary before you can offer direct debit to donors.
The IPSO was established in June 1997 as the voice and guardian of the payments industry and the strategic interface with all payments stakeholders. Its fundamental principles are ‘to preserve the integrity and security of the payment systems and to promote and oversee the strategic development of such systems in the interest of the industry and the general public.’
Complete Direct Debit Scheme Rules are available from their website, www.ipso.ie