Running a small business such as an independent gym or health club can be stressful at times. Not only do you need to be concentrating on sales all the time, but there is also the abundance of red tape to contend with. Corporation Tax and VAT returns along with PAYE, employee issues, maintenance of the building and equipment along with customer service issues all start to eat into your time.
Each month you then need to reconcile your membership payments received against those that were due. With four or five hundred standing orders coming into the company account, this undoubtedly will take valuable time that could be better utilised elsewhere. Only when the reconciliation is complete can you identify those members who haven't made their payment and begin the monthly process of chasing those members up by telephone for card, cheque or cash payments. For persistent late or non-payers, more time is then taken by having to pass the debt to a debt collection agency or pursuing the outstanding amounts through the court system.
Moving membership collections onto Direct Debit could help reduce the time taken for reconciliation. Direct Debit is a system that operates on 'reports by exception' so you only receive reports when action needs to be taken - for example; unpaid amounts, cancelled instructions or changes to bank details. This means that you only need to concentrate on doing the things that really matter to your business.
While the Direct Debit payment method has been around for some forty years, getting access to the service can prove troublesome. The Direct Debit Guarantee is in place to give consumers protection and confidence in the system, however a customer's ability to claim back a single Direct Debit, or indeed a sequence of transactions without restriction on amounts or timeframe brings an element of risk to a sponsoring bank who provides access to the service. To restrict the risk to the bank, generally they will look for one or more of the following: (a) a turnover in excess of £1m; (b) A lengthy historical relationship with the bank; or (c) A deposit to be held by the bank.
These prerequisites preclude the majority of UK small businesses, so a number of specialised Direct Debit Companies have stepped in to fill the gap. These services provide a managed Direct Debit Service and can apply for access to the Direct Debit System by sponsoring a Facilities Managed Service User Number (FM-SUN) on your behalf. Some providers can also discount the service further by allowing the use of a shared unbranded SUN which means that the benefits of Direct Debit can be brought to all but the smallest of businesses.
Health Clubs and gyms suffer from high dropout rates. Members that signed up to beat the Christmas Flab rapidly lose interest in February and March and as the festive credit card bills start have impact, gym payments begin to be returned unpaid. This is where Direct Debit comes into its own: unpaid amounts can be scheduled to be resubmitted so a second attempt at collection can be made. Where a payment bounces at the end of the month, a resubmission in the early part of the next month may reap rewards as salaries are credited to members' accounts and the funds become available for collection.
For persistent non-payers, particularly in the initial twelve months of a membership contract, debt collection services can be an important service. Some BACS Approved Bureaux also have the facilities to chase debts on your behalf going through a set procedure of dunning using letters and telephone calls to request immediate payment of outstanding amounts. Letters can become stronger as debts become delinquent, and if no payment is forthcoming after a set period of time, the debt can then be sold onto debt collection agencies for court proceedings to be issued.
All of this happens in the background when you use a Direct Debit Company so you can concentrate on growing your business by selling new memberships, upselling to existing members and focusing on providing that excellent customer service that you can only receive from a truly independent gym operator.