Direct debits are a way to pay regular bills from your current account (such as your council tax or TV licence).
You can set up a direct debit by signing a Direct Debit Mandate form, by going into branch or calling your bank. A direct debit can be set up to pay on a particular date every month, quarter or year.
Money is then taken from your bank account automatically by the company you are paying, according to your instructions. Generally direct debits are taken on the next working day, however if you sign an agreement that the company can take the payment earlier then it is possible that they are able to do this.
The main difference to a standing order is that the company or person you are paying can change the amount of the direct debit or the date they take it – although they must inform you of this first with a certain number of days notice.
According to the BACS Service User's Guide and Rules to the Direct Debit Scheme (version 3.3) "valid advance notice can be given in written,electronic form or orally. Proof to the paying bank that advance notice has been issued does not provide proof of receipt by the payer."
The company or person you are paying by direct debit may give you written notification of a change by "a letter addressed to you, in your statement*, in an invoice*, in a schedule where dates or amounts are known in advance or within a contract which may be issued between the company and the payer. * NB – both of these must clearly display that collection is for Direct Debit, the amount to be debited and the debit due date." This is the most widely accepted method of advance notice. However, the company may also notify you of a change to your direct debit by "electronic notification on any form of electronic hardware", which could include email or via their website. However this method of communication is risky to both parties as you may not receive the email or visit the website.
If there isn't enough money in your account to pay a direct debit, your current account may have a buffer zone. This is basically a small interest free overdraft that your bank won't charge you for if you creep into it.
Exceed the buffer zone and your bank or building society may not pay the direct debit and might even charge you a fee. If paying a direct debit pushes you into an unauthorised overdraft, you may have to pay additional charges as well.
If you know beforehand that you won't have enough in your bank account, the best thing to do is arrange a temporary overdraft with your bank to pay the direct debit. Alternatively you could try to negotiate a later payment date with the company in question.
If you miss direct debits regularly you should consider changing payment dates or paying by a different method.
Not always. Some credit accounts where you pay by monthly direct debit may not appear on your credit report. Some companies only provide details to a credit reference agency of credit accounts where outstanding monies are owed to them. In addition, a credit reference agency may not hold information on certain accounts you may hold or the company you have a direct debit with may not provide account details to the credit reference agency.
You can cancel a direct debit at any time. However, make sure you inform the person or company that receives the payment before you do, as you could incur fees or penalties for non-payment of a bill.
This could even go onto your credit file and affect your credit rating if you don't pay a bill in a certain time frame.
"The direct debit guarantee applies to all banks and building societies taking part in the direct debit scheme. It says that:
Reference: The Financial Ombudsman - Issue 27 - Banking - direct debit guarantee
The direct debit guarantee does not cover payments made by debit or credit card. This is what is referred to as a continuous payment authority.
Stay on top of your finances with a handy tool from the Direct Debit Control Centre. This free app can help you to keep track of all of your Direct Debits, making sure you always know how much is scheduled to leave your bank account and when. Use it with:
What is a credit card continuous payment authority?
What is a standing order?
Financial Ombudsman Consumer Helpline: contact them if you want more information about the direct debit guarantee
Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.