How to Set Up Direct Debits in Xero: Automating Recurring Payments

Setting up direct debits in accounting software can be a tedious manual process.

Automating recurring payments with Xero direct debits streamlines invoices and cash flow.

This guide covers everything from integrating GoCardless to handle mandates, automating recurring invoices, optimizing payment schedules, and troubleshooting issues.

Introduction to Direct Debit Automation in Xero

Automating recurring payments through direct debit can provide significant time savings and cash flow benefits for Xero users. By setting up direct debit, you can collect regular payments from customers automatically without needing to manually send invoices or chase payments each month.

Understanding Direct Debit Payments in Xero

Direct debit allows businesses to collect recurring payments for subscriptions, memberships, installment plans, or ongoing services directly from their customer's bank account on a defined schedule. The payments are pulled automatically on the due date without the customer needing to take action.

To collect direct debit payments in Xero, you can integrate with payment services like GoCardless which are specialized for bank debit transfers. You can set up mandates, manage customer approvals, view payment histories, and automate reconciliation.

Advantages of Automating Payments with Direct Debit

There are several notable benefits to using direct debit for recurring transactions in Xero:

Saves Admin Time: Automated direct debits remove the need to manually send invoices and chase late payments every month. This can free up significant time for more productive tasks.
Improves Cash Flow: Payments are collected on their exact due dates regardless of weekends or holidays. This consistency is vital for cash flow forecasting.
Reduces Churn: Automated payments have much higher renewal rates compared to manual payments. You can also update pricing or subscriptions in bulk easily.

By switching recurring customer payments to automated direct debit, Xero users can streamline their processes, reduce administrative tasks, improve cash flow timing, and retain more customers.

How do I set up Direct Debit payments in Xero?

Setting up Direct Debit payments in Xero allows you to easily collect recurring payments from your customers automatically. Here are the key steps:

Sign up for Direct Debit through a provider like GoCardless. This allows you to collect payments directly from your customers' bank accounts.
In Xero, go to Settings > Payment Services and connect your GoCardless account. This links Xero to your Direct Debit provider.
When creating or editing a customer in Xero, scroll down and enable the "Direct Debit" payment option. Enter their bank account details.
On the Sales tab, create invoices with automatic payment dates. Xero will pull payments on those dates via Direct Debit that you've set up.
You can also create repeating invoices that charge customers on a schedule. The payments will be automatically collected via Direct Debit.
Monitor the Payments section to see successful collections from customer accounts.

The key benefits of Direct Debit include:

Automatic payment collection without manual work
Ability to schedule repeating invoice payments
Pull payments directly from customer bank accounts
No card fees and fewer failures than credit cards

By setting up Direct Debit in Xero, you remove the friction of payment and ensure on-time invoice settlement.

How do I set up recurring payments in Xero?

Setting up recurring payments in Xero is a straightforward process that allows you to automate billing for regular transactions. Here are the key steps:

Access the Recurring Bills area

In the Business menu, select Bills to pay. Then click on the Repeating tab. This is where you manage all recurring bills and payments.

Alternatively, you can create a new repeating bill from a contact record by clicking New and then selecting Repeating bill.

Set up the repeating bill

When creating a new repeating bill, you will need to enter details like:

Bill contact
Frequency of payment
Payment method - bank transfer or credit card
Start and end dates
Reminder settings

You can also add an optional reference number for your internal tracking.

Link to invoices

A key benefit is that you can link recurring bills to invoices in Xero. So with each scheduled payment, an invoice can automatically be created and sent to your customer.

To set this up, enable the "Create and send invoice" option when creating or editing the repeating bill.

Edit existing recurring bills

To update an existing repeating bill, find it under the Repeating tab and click Bill options. From here you can adjust the frequency, linked invoices, end date, and other settings.

With a few clicks, you can have recurring bills and payments set up on autopilot. This saves time over manually creating the same transactions repeatedly.

Can Xero do automatic payments?

Minimise late payments by automatically debiting your customer's bank account whenever your Xero invoices are due. You can set up direct debit in Xero to easily collect recurring payments. This can help improve cash flow by ensuring you get paid on time.

Here are some tips on setting up direct debit in Xero:

Connect your Xero account to a direct debit provider like GoCardless. This allows you to collect payments directly from your customers' bank accounts. The integration makes it easy to set up and reconcile payments.
Send invoices in Xero as normal, but tick the box to automatically charge the customer via direct debit when the invoice is due. This takes the effort out of chasing payments.
Customers can review upcoming payments in advance so they know what to expect. This avoids surprises and improves customer experience.
Update subscriptions in bulk when prices change. The direct debit collects the new amount automatically without needing new mandates.
View your upcoming payments dashboard to check the status of any collection issues. Failed payments can be chased up quickly.
Switching customers to direct debit can improve cash flow and save lots of administrative effort chasing payments. But make sure to explain the benefits to customers first.

Setting up direct debit in Xero provides an efficient way to collect recurring payments automatically. This can minimise late payments and simplify payment reconciliation, improving business cash flow.

Are direct debits set up automatically?

A Direct Debit can only be set up by the organisation receiving the payment, not automatically. Typically, the paying customer signs a mandate authorizing the receiving organisation to withdraw funds from the customer's account on a scheduled basis, like for a monthly gym membership or mobile phone bill.

Here are a few key points about setting up direct debits:

Direct Debits require permission from the paying customer through a signed mandate before payments can be taken. This authorization cannot happen automatically without the customer's consent.
The mandate specifies the payment amount, frequency, etc. so the customer maintains control over what is deducted from their account.
Businesses and billers need to request and receive a completed mandate form before activating any Direct Debit payments from a customer's account.
With accounting software like Xero, businesses can send invoice payment requests with a Direct Debit mandate for customers to approve. Once authorized for a customer, future payments can be automated based on the agreed schedule.
Customers can cancel a Direct Debit authorization at any time to stop automatic payments in the future.

So in summary, Direct Debits are never set up without direct permission from paying customers through a signed mandate. The authorizing business initiates the request for payments to be automated in the future, not any automatic system.

Setting Up Direct Debit in Xero

Integrating direct debit payments into Xero can help businesses like yours automate recurring customer transactions, simplify payment collection, and improve cash flow. This guide will walk through the key steps to enable and configure direct debits in Xero.

Integrating GoCardless with Xero for Direct Debits

To collect direct debit payments in Xero, you first need to connect an approved direct debit provider. Popular options like GoCardless offer seamless Xero integration through certified add-ons.

To link GoCardless to your Xero organization:

Sign up for a GoCardless account and complete merchant onboarding
In Xero, go to Settings > Add-ons and search for GoCardless
Click Install to connect GoCardless with your Xero organization
Follow the prompts to securely link your GoCardless and Xero accounts

Once installed, the GoCardless add-on will automatically sync payment details between the two platforms.

Configuring Customer Contacts for Direct Debit

Before you can collect direct debit payments from customers, their bank account details need to be stored against contacts in Xero.

To configure a customer for direct debit:

Go to Contacts and open the customer record
Select the Direct Debit tab
Enter the customer's account details
Save the contact record

Repeat this for every customer you wish to bill via direct debit.

Establishing Direct Debit Mandates

With bank details stored against customer contacts, you can now send direct debit requests. This secures a digital mandate authorizing payments from the customer's account.

To establish a direct debit mandate:

Go to Contacts and open the customer
Select Create Payment
In the GoCardless section, choose Create a Direct Debit mandate
Enter the payment amount and date
Send the mandate request to the customer

The customer will receive an email asking them to digitally authorize the mandate. Once approved, you can take payments via direct debit.

Automating Recurring Invoices with Direct Debit

Direct debit shines for recurring transactions like subscriptions. Once a mandate is established, Xero automatically bills the customer on the invoice due date without manual intervention.

To set up recurring invoices with direct debit:

Create a repeating invoice for the customer
Check the Automatically collect payment box
Select Via GoCardless and choose the mandate
Enable the invoice to repeat based on custom rules

Now this invoice will automatically bill the customer via direct debit as per the defined schedule. Streamline your recurring billings with direct debit today.

Optimizing Recurring Payment Schedules

Recurring payments like subscriptions can be easily automated in Xero using Direct Debits. This allows you to customize payment schedules, update billing details in bulk, and enable instant payments when sending invoices.

Customizing Direct Debit Schedules for Flexibility

With Direct Debits, you can schedule payments on any day of the month, not just on standard monthly or annual schedules. This flexibility allows you to align payment dates with your customers' cash flow. Some examples:

Schedule debits every 2 weeks to match payroll cycles
Set up weekly or daily debits for small subscription amounts
Charge yearly subscriptions on a specific renewal date

To customize schedules, edit the payment details when setting up the Direct Debit mandate in Xero.

Bulk Updates to Subscription Billing

Making updates to multiple customer subscriptions is easy with Direct Debits. To change pricing, details or billing schedules in bulk:

Export the subscription list from Xero
Update details in the spreadsheet for each customer
Import the updated spreadsheet to apply changes

This saves time compared to editing each subscription individually.

Enabling Send Invoice with Auto Pay Feature

You can allow instant payments when sending invoices to customers with Direct Debit set up.

To enable:

Go to Settings > Invoice Settings
Check the "Send Invoice with Auto Pay" option
Confirm which account to withdraw payments from

Now invoices will be paid automatically on send. Customers can also opt to pay early or delay payment before the due date.

Automating payments like this improves cash flow while saving you time reconciling invoices.

Managing Direct Debit Changes and Issues

Troubleshooting Common Direct Debit Payment Issues

Some common issues that can occur with direct debit payments include:

Failed payments: This happens when there are insufficient funds in the customer's account. You can retry failed payments manually or set up automated retries in Xero.
Disputed payments: Sometimes customers dispute a payment if they don't recognize it or think it's incorrect. Xero allows you to view and respond to disputed payments.
Late payments: Payments may be delayed due to issues on the bank's end. You can reach out to customers about late payments or set up reminders in Xero.

To troubleshoot, first confirm the direct debit setup is correct in Xero. Check for typos in account details. Then verify with the customer that the account and authorization is valid. If it still fails, contact the bank or change accounts.

Switching Your Customers to a New Direct Debit Provider

To switch direct debit providers in Xero:

Sign up for the new provider and get the credentials
In Xero, go to Settings > Payment services and connect the new provider
Disable the old provider but leave payment history intact
Use bulk update in Contacts to change existing direct debits to the new provider
Confirm new provider shows in contact accounts and transactions

This retains payment history while routing future debits through the new provider.

Handling Failed or Delayed Direct Debit Transactions

For failed direct debit transactions in Xero:

A reversal transaction is automatically created
You can retry the payment manually on demand
Or enable automated retry rules in Payment Services

For delayed transactions, wait 1-2 business days for the payment to finalize. If it still hasn't appeared, contact the bank to investigate the status.

To minimize failures, remind customers to have sufficient funds before due date and fix any account issues. Reach out to customers about persistent failed payments.

How to Cancel Autopay for Direct Debits

To cancel autopay for a direct debit customer in Xero:

Go to Contacts and open the customer
Click Manage Accounts > View Accounts
Find the direct debit account and click Stop Autopay
Confirm that no future scheduled payments remain

This will prevent any further automated payments but retain payment history. To remove bank account details fully, delete the stored account.

Conclusion: Mastering Direct Debits in Xero

Setting up and managing direct debit payments in Xero can help businesses like yours automate recurring transactions, reduce administrative tasks, and improve cash flow. Here are some key takeaways:

Direct debit enables you to automatically charge customer bank accounts on a set schedule without manual payment chasing. This saves time while ensuring predictable revenue.
GoCardless and BECS are easy ways to collect direct debit payments in Xero. They integrate seamlessly, letting you create and view mandates directly in Xero without switching between systems.
Start by enabling direct debit payments under Settings. Then connect your bank account. Now you can send invoices with a "Pay Now" button, allowing customers to securely approve mandates.
Review the Direct Debit tab in Contacts to quickly check status, view upcoming payments, and manage mandates. Toggle auto-payments on/off here too.
Use simple bulk actions to update subscriptions, switch customers to direct debit, or cancel auto-pay across multiple contacts simultaneously.

Leveraging direct debit can transform recurring cash flow for your business. Follow best practices around setup, integration, and management to fully automate payments in Xero. Reach out if any questions!

How to Set Up Direct Debits in Xero: Automating Recurring Payments

Introduction to Direct Debit Automation in Xero

Understanding Direct Debit Payments in Xero

Advantages of Automating Payments with Direct Debit

How do I set up Direct Debit payments in Xero?