Direct Debit in United Kingdom

Direct debits are one way to manage your regular bill and debt payments

A direct debit is a single order paying method, or instruction from a customer

Direct Debit
A payment of an agreed amount collected from a customer’s Bank / Building Society account by an Originator on request. The amounts and dates may vary from payment to payment, subject to advance notice being given. Examples of Direct Debit are utility billing, subscriptions and the collecting of funds by financial institutions (such as mortgages, loans or insurance premiums). Further information is available at www.directdebit.co.uk

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A Direct Debit is a regular payment debited from your account that you have previously authorised. The transaction is ‘pulled’ from your account by the company who’s provided you with a service, but only because you know in advance the amount you will be debited and the date the payment will happen. Direct Debits are typically used to make regular payments for life, car and home insurance, council tax, utility bills and subscriptions. Amounts can vary but you will always know in advance what the amount will be.
What would I use this for?

Direct Debits are typically used to make payments for regular financial commitments, for example mortgage payments, or utility and mobile phone bills. Businesses like Direct Debits as they have more certainty about when they get their money and it makes their administration more efficient. As a result customers willing to pay by Direct Debit can often find cheaper deals, particularly for their energy supply.
You can also set up a Direct Debit to pay your credit card each month – either the full balance, a set amount or the minimum amount required by your credit card company. In addition you can use a Direct Debit to pay less frequent bills, for example an annual insurance policy.
You can sign up to a Direct Debit agreement over the phone or online, not just on paper. In those cases, the company you have agreed to pay must provide you with evidence of your agreement for your records.

How do I use it?

You will need to have a bank or building society account capable of making Direct Debit payments; most accounts have this option.
The company you are paying will need to have an arrangement with their own bank that allows them to collect payments by Direct Debit and ensures they have been rigorously checked.
You will need to supply the company you are paying with your account details, including name of bank, sort code and account number. They will either take this information over the phone or online, or by using an instruction that you sign and return to them. This will set out the terms of what you are agreeing including the date and frequency of payment (monthly, quarterly, annually etc.)
The company will then send this information on to your bank either electronically or by paper and your bank will then set up the Direct Debit for you.

Security

You will always be given notice of the amount to be taken from your account and when. The Direct Debit Guarantee stands behind all Direct Debit payments and ensures that if any mistake is made, your bank will refund you immediately.
Full details can be found on the Bacs website.

Useful information

Direct Debits are made using Bacs. Bacs processes large volumes of financial transactions electronically, including our salary payments and Direct Debits. You are debited at the same time as the company you are paying receives the money, and on the agreed date.
If the payment date falls on a weekend, or a Bank Holiday, the payment is made on the following working day.

See Also

Standing Order
Bacs
Payment Methods
Faster Payments