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What does Direct Debit mean?

What does Direct Debit mean? Most people in the UK use at least one Direct Debit to make payments on a recurring basis. Whether it is for rent payments, council tax, mobile phone bills etc. it is very likely that you would have heard of direct debit. But what is Direct Debit? In this article, Interbacs takes a further look at why so many organisations and individuals use this method of payment.

What is Direct Debit?

The definition of a Direct Debit according to the Oxford Languages dictionary is:

‘An arrangement made with a bank that allows a third party to transfer money from a person's account on agreed dates, typically in order to pay bills.’

Direct Debit was introduced as a method of payment collection in 1964, following a sustained campaign by British banker, Alastair Hanton to find a more cost-efficient method of payment than the traditional banking methods of paying in cheques. A decade later, Direct Debit had come into general use in the UK, thanks to the savings made.

How does Direct Debit work?

Direct Debit works by granting authorisation to a payee to collect payments from a bank account at an agreed payment date for when it is due. Authorisation is granted through the completion of a Direct Debit mandate form, and once authorised, payments can be taken automatically by the organisation or individual in compliance with DIrect Debit scheme rules.

As mentioned above, Direct Debit in 2021 is an extremely common method of payment collection and can be used for a whole host of payment types. Some of the most common include:

  • Regular Bills
  • Membership Subscriptions
  • Account payments

What does Direct Debit mean for those using it?

The streamlining of the payment collection process has a multitude of benefits both for the organisation or individual making the payment, and those collecting. Here are some of the key benefits to Direct Debit:

  • Goodbye to late payments — Direct Debit ensures payments can be collected in a timely way on a payment date agreed by the payee and collector automatically, waving goodbye to late payments.
  • Reduced admin — Once your mandate is agreed and all payments are authorised, there is no more admin required around the payment itself for both payee and the organisation or individual collecting the payment
  • Cost savings — The whole reason that Alastair Hanton campaigned for the set up of Direct Debit was to save cost on the more traditional payment collection methods. Direct Debit is typically cheaper than using most card networks to make payments as well
  • Improved cash flow — With late payments a thing of the past, cash flow will also improve as you will know exactly when to expect payments. This will enable you to make your own payments and use money for stock purchased or other investments with peace of mind. A great positive for a business to have.
  • Environmentally friendly — If the cost and time savings with better cash flow is not enough of a reason to think positively about Direct Debit, then how about the fact that it is great for the environment. On the whole Direct Debit has moved towards being entirely paperless and this alone also contributes to a more streamlined process when it comes to payment collection.

Why choose Interbacs for Direct Debit management?

So you have the answer to ‘what does Direct Debit do’, the next question is probably what can Interbacs do to ensure your Direct Debits are managed correctly? Interbacs delivers Direct Debit Management Software with a difference. Available in a three-tiered package offering, we have developed something for every kind of organisation.

Our software is fully integrated and we offer both Server and Cloud-based systems. Our InterPay Submission software enables you to prepare DDMS files to be sent to Bacs in the most time-efficient way and we can also act as a direct submitter for those who require access to the Bacstel-IP channel.

Why choose Interbacs? We combine 30 years of experience, with professional, customer-friendly service to ensure that all of the organisations we work with, regardless of size, receive the very best service. We are one of 18 Bacs Approved Bureaus in the UK and are market leading when it comes to the management of Direct Debit Facilities Management.

Don’t take our work for it. You can find out just how good our service is for yourself by taking a free no obligation demonstration of our software. Alternatively, why not get in touch with us today. We will be happy to talk to help you find your Direct Debit Management solution.