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Direct Debits for dummies: How do Direct Debits work?

Direct Debits are one of the most common and popular ways of making recurring monthly payments. There are billions of payments made every year in the UK alone, with companies and consumers utilising their many benefits. So, what exactly are they and how do Direct Debits work?

What is a Direct Debit?

A Direct Debit is an instruction from you to your bank or building society that grants them authorisation to collect recurring payments for an organisation of your choosing. Once you have set up a Direct Debit agreement with a company, the money is deducted automatically from your account every month.

The most common forms of Direct Debits are things like monthly bills (electric, gas, internet), mobile phone contracts, home and life insurance, car insurance and subscription services like Netflix. People sign up to Direct Debits because it saves them the time they would otherwise have to spend manually processing payments every month for potentially a dozen or more agreements.

Direct Debits are the most convenient way of making recurring monthly payments. It means you don’t have to worry about missing payments during busy times of the year or while on holiday.

Benefits of Direct Debits

The reason for Direct Debits being so popular is because of their many benefits, which are:

  • Spreads the costs - Paying regular bills or business outgoings by Direct Debit allows you to spread costs over a period of time that you agree with the organisation you’re paying. For example, if a payment structure over a longer period of time suits you, then you can do this.

  • Flexible - Many companies offer a variety of flexible payment dates, helping you to easily schedule your bills. Ask the organisation you are paying what options are available. For example, you may be paid your salary on the 28th of the month but some Direct Debits are taken on the 26th. You’re able to change your payment date, with enough notice, to make things easier for you.

  • Guaranteed - Direct Debit payments come with a guarantee which means you’re automatically protected across three fronts. These include an immediate money-back guarantee in the event of a payment error, advance notice if the date or amount changes, and the right to cancel at any time (though you may be liable to a cancellation fee depending on your circumstances).

  • Saves money - Businesses find Direct Debits just as convenient as customers, and some tend to offer discounts to ditch manual payment for a Direct Debit. For example, your bills may be deducted by a certain amount over a year if you decide to pay by Direct Debit.

  • Peace of mind - Direct Debits are one of the safest and most convenient ways of making payments because they’re made automatically, so bills are never forgotten or delayed. Companies that use the Direct Debit Scheme have to pass a careful vetting process, and are closely monitored by the banking industry, providing more protection for consumers.

  • Saves time - Takes away much of the hassle associated with paying bills, and means you can spend more time doing the things you want to. Direct Debits make it easier to stay on top of your payments too.

Negatives of Direct Debits

There are not too many negatives associated with Direct Debits, especially if you’ve done your own due diligence when signing up to an agreement. When using Direct Debits you need to ensure you’re in control of your finances and check that there are enough funds in your account prior to your payments being taken.

Direct Debits offer great convenience when paying recurring bills but you still need to keep on top of them, ensuring you know how much is leaving your account and when. If there isn’t enough funds to make a payment, you’ll be charged late or missed fees from the organisation you’ve failed to pay.

Difference between Direct Debits and Standing Orders

When thinking of Direct Debits, you may have heard of Standing Orders too. While they are very similar, there are key differences between the two payment methods.

A standing order is an instruction a customer gives to their bank or building society to pay a fixed amount at regular intervals. This could be weekly, monthly or even yearly.

For Direct Debits, a customer authorises a company to collect money from their account when the payment is due. Direct Debits can change in amount and date too.

Direct Debit Management Systems at Interbacs

Interbacs’ Direct Debit Management System (DDMS) makes it easy to edit, cancel and create new Direct Debits. This powerful Direct Debit management software is a full Direct Debit suite, meaning fewer manual tasks and more automated payment services. Data is imported for processing and then converted into the most applicable format for your systems.

Not only does this Direct Debit management solution validate customer data and bank account details according to Bacs regulations, but it also enables you to create and edit payment plans with ease.

If this sounds like something your business needs, or you’d like to hear more about the services we offer, don’t hesitate to contact us on 0161 667 0758 or email us at