Please note this article is for general educational purposes. Please check your product terms and conditions from your individual provider.
This article will give you an overview of Direct Debits, setting them up and cancelling them, as well as other key details.
What is a Direct Debit?
When it comes to managing your finances, keeping track of bills and payments can be a hassle. This is where Direct Debit comes in – it’s a simple and convenient way to automatically pay regular bills.
What does Direct Debit mean?
A Direct Debit is an instruction you give to your bank or building society allowing a company or organisation to take money directly from your account. It’s often used for paying recurring costs, like your monthly mortgage, energy, or subscription streaming service. Instead of having to remember to pay each bill manually, the money is taken automatically on the date it is due.
How does it work?
When you set up a Direct Debit, you agree to let a specific company or business take money from your bank account. You’ll usually do this by filling out a form or completing an online setup. Then, on the agreed date, the money is automatically withdrawn from your account. If your monthly payment is going to change, the company must inform you of how much will be taken and when. This gives you time to make sure there’s enough money in your account.
Even though the payments are automatic, you can cancel a Direct Debit at any time by contacting your bank or building society. You should also inform the company involved.
Keep in mind that if you have a contract with the company, you might be breaching this contract, even if you decide to pay each month by another method of payment. So read the small print!
What’s the difference between a standing order and Direct Debit?
Both standing orders and Direct Debits are methods of making regular payments directly from your bank account. However, they don’t work the same way and are suited to different purposes. Depending on who you’re transferring money to, you might not have a choice about which method is used. It’s good however, to understand the differences.
A standing order is an instruction you give to your bank to pay a fixed amount of money to another account at regular intervals. You decide the amount, who you wish to pay, and payment schedule – weekly, monthly, annually etc. You’re the only one who can amend it.
A Direct Debit, on the other hand, allows a specific company or organisation to take money from your account. Unlike a standing order, the payment amount can vary, and the company controls when and how much they take, within the limits you’ve agreed to.
Why use a Direct Debit?
Direct Debit offers convenience, as you don’t have to worry about missing a payment or remembering due dates. Everything is handled automatically. You’ll get peace of mind knowing your bills are paid on time, helping you avoid late payment fees or other penalties.
Some companies offer discounts or special deals if you pay by Direct Debit. Plus, in the event of an incorrect payment being made, you’re protected by the Direct Debit Guarantee.
Direct Debit Guarantee
The Direct Debit Guarantee allows you to get your money back should anything go wrong. This could be a payment being taken on the wrong date, or for the incorrect amount. This protection makes it a secure method for paying regular bills.
How do I set up a Direct Debit?
Setting up a Direct Debit is usually straightforward. You simply decide which bill or service you want to pay by Direct Debit, then provide the issuing company with your bank or building society account details. This can usually be done online, over the phone, or with a paper form.
The company will then send you a confirmation of the Direct Debit setup, including the amount and date of payment. Once everything has been successfully set up, the payments will be made automatically on the dates agreed.
How to cancel Direct Debits
If you need to change the amount or date of a Direct Debit, simply contact the company you’re paying. They will handle the update and inform you of any changes.
If you ever want to cancel a Direct Debit – perhaps because you’ve switched providers, no longer need the service, or want to change your payment method – you can do so by contacting your bank or building society. This can often be done through online banking, by phone, or by visiting your local branch.
It’s also a good idea to notify the company or service provider you were paying, as this prevents them from attempting to take future payments. Once you’ve cancelled, check your bank statements to confirm no further payments are being taken.
Who can cancel a Direct Debit?
Only you, as the account holder, can cancel a Direct Debit. The company you’re paying cannot cancel it on your behalf. They can, though, reduce the payment to zero, for example if you had nothing to pay on your credit card one month.
It’s wise to cancel the Direct Debit at least a few days before the next payment is due, to ensure the cancellation is processed in time. Should a payment be taken after you’ve cancelled the Direct Debit, you’re entitled to a full and immediate refund under the Direct Debit Guarantee.
Do Direct Debits help credit scores?
While Direct Debits themselves don’t directly impact your credit score, they can influence it in a few important ways. For instance, setting up Direct Debits for bills like credit card payments, loans, utilities, or other recurring obligations can help ensure they are paid on time. Doing so can help maintain a good credit score. Whereas late or missed payments can have a negative impact. Because Direct Debit payments are made automatically, they reduce the likelihood of forgetting a due date.
Can Direct Debit amounts change?
Direct Debit amounts can change, but there are specific rules around how and when these changes can occur.
For instance, some are set up to pay utility bills, credit card payments, or mobile phone bills. The amounts charged for these may vary each time based on your usage, or the terms of your agreement with the service provider. However, the company or organisation taking the payment must notify you in advance if the amount or due date changes. This is typically done by email, letter, or statement, and should happen at least 10 working days before the payment is taken. This then gives you time to review the change and check you have enough funds in your account.
If you have a Direct Debit for a fixed amount, such as a monthly gym membership or subscription service, the amount should stay the same unless you’re informed of a change. As above, any increase or decrease in the payment must also be communicated to you in advance, with at least 10 working days of notice.
Be aware that a company can also adjust the amount according to any specific terms of your agreement, such as adjusting for inflation or changes in service levels. However, they are still required to notify you before making any payment alterations.
If you disagree with a change, or find the new amount unaffordable, you can cancel the Direct Debit or discuss alternative payment arrangements with the billing company.
A Direct Debit can be a reliable, convenient and secure way to manage regular payments, whether that’s your mortgage or rent, or Netflix!
