What is a Direct Debit?


What is a Direct Debit?

If you need to set a payment up to go out of your account regularly, there are a number of ways you can do this and the company you’re paying may give you the choice.

You might not think it matters – it’s a bill going out of your account, how it is paid is of no consequence to you. But regular payments differ for a reason so if you’re not sure what the difference is – listen up!

In this blog, we explain the most popular method of bill payment – Direct Debits - what they are, how to set one up and how it differs from other regular payments.

So let’s get started.

What is a Direct Debit?

A Direct Debit is a way of regularly paying bills from your account. Once set up, it will automatically go out of your account on, or around, the date you agreed (it can differ slightly if the date you choose falls on a weekend or bank holiday).

To set one up, all you need to do is give the company your sort code, account number and sometimes the address of your bank.

You’ll agree with them when it’ll go out (monthly, quarterly, annually for example) and once set up, you don’t need to do anything else – it’ll just go out automatically. 

But how are Direct Debits different to other methods of payment like standing orders?

It’s about the give and take

A Direct Debit is TAKEN, or ‘claimed’ (by the company), from your account, whereas a standing order is SENT (by you) from your account.

This means once you’ve set a Direct Debit up, you have no control over the amount, or date, that the company comes in for it (though if you dispute the payment, there are things you can do to either stop the payment if it’s early enough, or claim the money back through a Direct Debit Indemnity).

A standing order gives you more control – you manually set when it will go out, at what amount and with what reference (this is what shows up on your statement and when the cash hits the other account).

Unless you manually change it, a standing order will go out at the same amount and at the same frequency every time until you stop it. That means if you have a bill that needs to stop going out, you need to remember to manually cancel it because if you don’t, it’ll just keep going out – a potentially expensive mistake!

Variety is the spice of life

Standing orders are therefore good for consistent payments – ones that go out for the same amount each month - such as rent, for example.

But not all bills work like this. Your credit card, gas, electricity and phone bills, for example, may be variable, meaning they’ll be different amounts each month, depending on your usage.

Direct Debits on the other hand, work better for these kinds of bills, because the company comes in and claims the amount you owe.

Often they’ll send you a bill beforehand, either by email or post, so you know how much they’ll take but you don’t have to do anything. They’ll amend the amount and it’ll automatically go out when they come in and claim for it.

Setting it up

If you don’t like the sound of paying your bill by either Direct Debit or standing order, there are other methods available – such as manual card payments or money transfers, for example.

Direct Debit is common but it’s not every company’s default, so if you have a particular method of payment you want to use, make sure you speak up and ask them.

The company will want to make it as easy as possible – you’re giving them money after all – to facilitate your payment. So have the conversation!