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Banking Awareness : All About Direct Debit

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Simply, a Direct Debit is an instruction from you to your bank or building society. It authorises the organisation you want to pay to collect varying amounts from your account – but only if you’ve been given advanced notice of the amounts and dates of collection.

Once you have agreed those, the money is deducted automatically. If the organisation you are paying wants to change an amount or date of collection, they have to tell you about it first.

In a nutshell, Direct Debit is the simplest and most convenient way for you to pay regular and occasional bills.​​​

Benefits of Direct Debit

Whether using Direct Debit to pay your household bills or business costs the benefits are the same and worth the few minutes it takes to set up a Direct Debit.

It spreads the costs
Paying your regular bills or business costs by Direct Debit allows you to spread costs over a period that you agree with the organisation you are paying.

It’s guaranteed
Direct Debit payments come with a guarantee so you’re automatically protected by three important safeguards:

  • An immediate money back guarantee from your bank in the event of an error in the payment of your Direct Debit
  • Advance notice if the date or amount changes
  • The right to cancel at any time.

It can save you money
Businesses find Direct Debit just as convenient and efficient as consumers. For this reason, many offer discounts in return for you paying by Direct Debit.

Discounts vary, but overall Direct Debit savings can add up to a substantial amount each year. It pays to check when you get a bill to see how much you can save.

It gives you peace of mind
Direct Debit is one of the safest and most reassuring ways of paying your bills:

  • Payments are made automatically, so bills are never forgotten, lost in the post or delayed by postal problems and there’s no risk of late payment charges
  • Organisations using the Direct Debit scheme have to pass a careful vetting process, and are closely monitored by the banking industry
  • The Direct Debit Guarantee protects you and your money. It’s offered by all banks and building societies that take part in the scheme.

It saves you time
Modern life is hectic – but Direct Debit helps. It takes away much of the hassle associated with paying bills, and puts an end to queuing at the bank and filling out cheques. You’ll find it easier to stay on top of your bills, and you’ll know exactly how much money is going out each month. For businesses paying by Direct Debit also means reduced workload and paperwork for your finance department.

Direct Debit vs Standing Order

People often confuse Direct Debits and standing orders. That’s understandable – the differences are subtle but important.

Standing Order Direct Debit
What is it? An instruction to your bank to make payments to a person/organisation. An authorisation for a person/organisation to take payments from your account when they are due.
What is it used for? Regular, fixed payments like rent payments, monthly charity donations or regular payments into a savings account. Regular payments of variable or fixed amounts like mortgage payments, utility bills or other bills based on usage.
How do you set one up? You instruct your bank. You decide when and how much to pay, and tell your bank to do this. You complete an instruction form then you won’t need to do anything else.
Customer protection None. Once you pay, you can’t get it back. High. Immediate refunds from your bank in the event of an incorrect payment.

 

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