Direct Debit – What Is It and How Does It Work?

Direct Debit

A Direct Debit is a form of authorization you sent to your bank, which allows another organization to take recurring payments from your bank account. It comes in handy for paying bills like your rent, electricity bill, or suppliers’ costs, etc. You have to fill a direct debit mandate form to give instructions to your bank. After your form has been processed, regular payments will be automatically made to the organization, with you confirming the payment beforehand. Read on to learn more about the direct debit system:

When Should Direct Debit Be Used?

In several countries all over the globe, direct debit is used as a common form of transaction. This is because you can use it in a wide range of transaction situations, and the best part is that it is secure, cost-effective, and convenient.

  1. Direct Debit for Recurring Payments

When it comes to recurring payments, direct debit has to be the most commonly used method. However, you can have a direct debit set up for recurring payments if you want to automate or if the company providing the service or product prefers it. A few examples where this payment method is widely used include:

  • Rent payments
  • Software such as MS Word, Debitoor
  • Subscription payments (to mobile service providers, magazines, etc.)
  • Utility bills

Once you have automated your recurring payments through direct debit, you won’t have to worry about payment errors or late payments. Also, you won’t have to deal with the hassle of manually making the payment every month or whenever you have to.

  1. Direct Debit for Single Payments

Although many people believe that direct debit is only used for recurring payments, you can also use it for making one-off payments. And even though it is a relatively quicker method of making a payment, it is not faster than using a credit card when the transaction has to be instantaneous. So, if you have to use the direct debit method for making a one-off payment, your supplier will have to wait for a bit to receive the amount. Also, several banks even offer protection for when a direct debit is incorrectly taken.

Difference Between Direct Debit and Standing Order

Even though they might be similar, there are a few clear distinctions between the two that you should know about. These distinctions are mainly surrounding the party that initiates the payment.

In the case of direct debit, you authorize the organization or business to make the payment. But, they are the ones who control the amount taken and the date of payment. However, in the case of a standing order, you are the one who creates a payment that must be made in the future to an organization or a business on a specified date. Therefore, it can involve recurring expenses as well. Please note that with standing orders, you won’t receive the same protection as with direct debits. The reason behind this is that in standing orders, you are the one who has to set up the payment properly.

Essentially, the primary difference between the two methods is about the one who initiates the transaction. In the case of direct debit, the organization you have authorized is the initiator, whereas, in standing order, you have to set up the regular payment transaction.

A direct debit system is a simple, sensible payment alternative with complete control over the payments you make, including the recurring payments. Its minimal need for manual intervention and low failure rate makes it an appealing option to customers and businesses.

Arnold Bloom


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