Most people have heard of the term ‘Direct Debit’ but it is important to know an exact definition and how a Direct Debit might differ from other forms of payment such as Standing Orders, faster payments and Direct Credit.
Definition of a Direct Debit
- A Direct Debit can be defined as follows:
A Direct Debit is an instruction from a customer to their bank or building society authorising an organisation to collect varying amounts from their account, as long as the customer has been given advance notice of the collection amounts and dates.
This definition contains a number of important pieces of information which are key to Direct Debit:
1. Collection is by the Service User. The process of collecting the money is initiated and managed by the organisation who wishes to receive payment. It is not a process managed by the person paying the bill.
2. The Direct Debit can cover varying financial amounts and dates, unlike a Standing Order which covers a specified amount.
3. Not all Bank and Building Society accounts support the collection of Direct Debits.
4. The owner of the Bank / Building Society account must have given approval to the Service User to collect the payment by signing of a Direct Debit Instruction
5. The process is covered by the Direct Debit Guarantee which is offered by the Banks / Building Societies to the owners of the Bank / Building Society account.