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Direct Debit vs Auto Debit – What’s The Difference?

In Malaysia, the term Direct Debit and Auto Debit are commonly used interchangeably and misunderstood as the same thing.


While both are methods of automatically collecting recurring payments, there are significant differences between the two that if confused for one another, can mean a world of difference for the business collecting payments.


To learn how to differentiate the two and find out which is best for you and your business, read our comparison below on the difference between Direct Debit vs Auto Debit and you’ll never make the same mistake again!


Note: Direct Debit, Auto Debit and standing instructions are all different payment collection methods. In this article, we only cover the first two. As for standing instructions, that’s for another day!

 

The major difference
Credit Card Illustration

Direct Debit is an automatic payment method that allows a business to pull payments directly from their customers’ bank account. It’s the easiest way for a customer to make regular or recurring payments to a business. Auto Debit (sometimes referred to as Continuous Payment Authority or CPA in the UK), on the other hand, also collects payments on a recurring basis. But instead of from their bank account, it collects payments from a debit or credit card.

In short:

Direct Debit = Regular or recurring payments collected automatically from a bank account.

Auto Debit = Regular or recurring payments collected automatically from a credit or debit card.

Comparing the two

So, that’s all there is to it?”

Well…not really. Due to the method of collection, there are several side effects that you, as a merchant or business owner are definitely going to want to take into consideration seeing as it might affect cash flow and conversion rates.

The advantages and disadvantages of direct debit vs auto debit. Although most are actually advantages when considering a market like Malaysia
Fret not, there’s a reason why the two are so confusing!

But we don’t blame you for mistaking one for the other. This common misconception is brought about due to the way both automatic payment methods are generally marketed in Malaysia. What with Auto Debit commonly being branded as Direct Debit and vice versa.

Take Maxis’ Direct Debit for example. It’s described as a payment instruction from you to Maxis which authorises Maxis to collect your bill charges from your credit/debit card account. The bill is deducted automatically at your regular bill cycle.

Did you catch that? “Collect your bill charges from your credit/debit card account” This means that Maxis’ Direct Debit is actually an Auto Debit service as it collects payments from credit/debit cards instead of directly from the bank account!

Remember, Auto Debit = Collected from credit/debit card. Whereas Direct Debit = Collected from bank account.

Which is better?

Both Direct Debit and Auto Debit are more efficient methods of collecting payments as compared to other payment methods.

Despite this, Direct Debit has the capability to cater to a wider audience and be more low-cost. This is due to the low percentage of credit card users in Malaysia, which severely limits the reach of businesses who offer Auto Debit.

Additionally, the high fees of processing transactions through the global Visa and Mastercard networks, especially when compared to that of Direct Debit, ensure that this is a costly method to run for businesses.

Find out if it’s time for your business to offer a new payment method by reading this article on whether or not your business needs a change in payment methods!

How does Curlec stand out?

With all that said, what makes Curlec different from the rest?

Curlec is the pioneer Direct Debit company in Malaysia. While companies offering Direct Debit services in Malaysia aren’t very many to say the least, they tend to be heavily paper-based and manual, many with long processing times and high rejection rates.

Curlec manages to stand out and make the process even more efficient for both merchant and customer alike by digitising the sign up process and offering the option of auto collection and account reconciliation, ensuring payments are collected in a seamless, affordable and worry-free way.

Uniquely in Malaysia, Curlec’s Direct Debit also accepts locally issued credit cards.

Wonder if your business can benefit from implementing Direct Debit? HINT: It helps to save admin work, reduce costs and improve cash flow!

Find out by asking us here!

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Life at Curlec

Curlec at SuperCharger Malaysia Demo Day 2018

Modern problems require modern solutions.

Zac Liew, CEO and Co-Founder of Curlec, reveals the truth behind the low adoption rate for Direct Debit as a payment method in Malaysia and what we are doing to bring Direct Debit to small and medium sized businesses in the country. He presented this at the SuperCharger Malaysia Demo Day at the annual SCxSC Fintech Conference.

During the 12-week SuperCharger Programme, we secured a proof of concept (POC) with a major government-linked company, acquired 52 new businesses and struck up 2 new banking partnerships.

SuperCharger is Asia’s leading FinTech Accelerator and Curlec was selected as one of ten companies from over 200 applicants for this year’s programme.

For more information on the SuperCharger event, take a look at this awesome story on Digital News Asia.
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Tips

This New Year, Will You Optimise Your Business Cash Flow?

As business owners, entering a new year means more than gym memberships and quitting bad habits. Personal goals aside, there are also New Year’s resolutions for the business. To provide better customer service, improve engagement on your social media channels and optimise cash flow once and for all, to name a few.


Many of these goals tie in to the overall cash flow of your business, which ultimately affects your daily operations and can become just as disconcerting as general revenue problems.

 

The consequences of poor cash flow are detrimental and can pave the way for a path to hindered growth, low profit margins and at worst, business failure. Not exactly how you’d want to ring in the New Year!


Yet, a business can still be profitable despite its negative cash flow, which explains why poor cash flow management is still ubiquitous in the majority of businesses, from homegrown startups to multinational corporations.

Sometimes, it’s just habits that stick. Especially in a nation like Malaysia, where payment terms are seen as more of an option than a priority, and getting paid on time is a rare case for joy.

But this new year, make it a point to optimise business cash flow by leaving behind these bad practices in the previous year and implement these techniques to optimise cash flow.

old school telephone to invoke vivid imagery on chasing late payments in the old days
Being afraid to approach clients for late payments

Instead: Offer discounts for early payments and penalties for late payments, implement automated solutions.

Undoubtedly, one of the biggest factors which affects the ability to optimize cash flow within a business is the bad practice of late payments.

It’s not uncommon for invoices to go unpaid for months, with buyers completely ignoring the payment terms stated in black-and-white and sellers not following up consistently, resulting in an increase in tension within the relationship.

Alternatively, for those on the buyer’s end, late payments can result in a loss of trust, endless frustration and the altogether loss of a client. So, what are some cash flow management strategies that can help break through this vicious cycle?

One solution is offering incentives for buyers who are early or on-time with payments, and implementing high interest rates for late payments exceeding the due date.

Despite this, many buyers will still not abide by the payment terms. An even better solution? Avoiding the topic of confrontation altogether by automating the invoicing and payment processes.

Direct Debit, for example, can help to collect payments from the buyer on date every month, mitigating the need to waste time, resources and manpower to follow up Every. Single. Time.

Forking out unnecessary funds and wasting resources

Instead: Save time and money by using Direct Debit to collect monthly payments.

Ask yourself this, how much time and money are you really spending every month on late payers?

You might not want to know the answer. Most recently, a US-based study from Sage reports that late payments are costing SME’s up to $3 trillion annually. That’s 12 zeros.

The report states that over 30% of SME’s viewed the client relationship as the number one barrier hindering them from chasing payments as aggressively as they’d like to.

“As a consequence of late payments, 16% in the US say they will struggle to pay bonuses around the festive period, and nearly 25% expect an impact on staff pay.”

Employee work hours, overtime, admin fees and the other extra costs can be almost invisible at times. That is, until it starts to pile up.

What can you do about it? One of the most efficient ways to optimize cash flow would be to use Direct Debit to make the payment collection process effortless and essentially, let it do all the dirty work for you.

Not managing your inventory well

Instead: Forecast well to reduce costs.

For many businesses, better business cash flow can even stem from optimizing inventory management.

Accurate forecasting for one, can ensure that you’re meeting demand while optimising inventory levels to maintain healthy net working capital.

Another method which has allowed previously irreducible cost centres to see gradual decreases over time is by supplementing robust SOPs (standard operating procedures) with technical competence in data analytics.

In many industries, expertise in supply chain analysis has also evolved to a point where the usage of advanced machine learning algorithms is regularly employed to optimise just-in-time inventory.


Sometimes, the issue may be, to put it simply – human error. Say, a miscount in inventory or erroneously processed orders. Automating such processes by using Curlec to pay for your orders on a regular schedule can help to reduce the risk of human errors. Find out how to do that by contacting us below!  After all, we’re only human right?