Direct Debit is the simplest, safest and most convenient way to make regular or recurring payments; that’s why it’s used for things like council tax and utility bills.
80% of Brits have at least one Direct Debit and the average consumer has six, but many people remain unsure what Direct Debit is or when it should be used. If you’re looking to set up a regular payment, read this guide to find out what Direct Debit is and if it’s right for you.
What is Direct Debit? A definition of Direct Debit
A Direct Debit is an instruction from you to your bank.
A Direct Debit authorises someone to collect payments from your account when they are due. You give this authorisation by completing a Direct Debit Mandate form – this can be a paper form or a web page that you complete online. Once authorised, the organisation can automatically take payments from you (provided that they comply with the scheme rules).
Direct Debit can be used for nearly everything
Direct Debit can be used for most payments but it’s most often used to pay:
- Regular bills for variable amounts – With Direct Debit you know all your important bills will be paid on time each month. In 2011 2.4bn payments were made by Direct Debit for utility bills and council taxes.
- Fixed subscriptions or memberships – Direct Debit is the safest and easiest way to make recurring payments like magazine subscriptions or gym memberships.
- Paying on account – Some organisations will provide Direct Debit as an option for spreading your costs or paying on account.
What are the important Direct Debit scheme rules that I should know?
- Advance notice – You must be told the amount and date of each payment in advance.
- Direct Debit guarantee – You are entitled to an immediate refund for any payments that shouldn’t have been taken.
Direct Debit is safe, convenient and cost effective for customers
There are three benefits to making payments using Direct Debit:
- Convenience – Payments are automatic, so bills are never forgotten, lost or delayed.
- Cost – Businesses may offer incentives for paying by Direct Debit.
- Customer Protection – Direct Debit is the safest payment method in the UK.
Direct Debit vs Standing Order
People often confuse Direct Debits and standing orders. That’s understandable – the differences are subtle but important.
A standing order means that you tell your bank to pay a given amount of money every month, quarter, year or other frequency to a specified bank account. A Direct Debit is an authorisation for a person/organisation to take payments from your account when they are due.
Paying by Direct Debit offers you better consumer protection, with immediate refunds from your bank in the event of an incorrect payment, while with a standing order, you must contact us to get your money back.
Standing orders give you control. Direct Debit gives you flexibility and safety
Standing orders are good for regular payments of a fixed amount. However, if you want to pay variable amounts or might need to change payment amounts then standing orders are not the most practical option.
Direct Debit lets you pay variable amounts or at varying intervals without needing to do anything more. This makes it great for paying bills where you are charged depending on what you have spent that month.
Direct Debit is the safest way to make payments in the UK. The Direct Debit Guarantee gives you a right to immediate refunds for any payments which shouldn’t have been taken.