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What is a Direct Debit?

Direct Debits are a convenient way to make payments that you need to pay each month, and can’t afford to miss.  

Direct Debits make it easier to manage recurrent payments, such as mortgages, rent, Council Tax, utility bills, mobile phone contracts, and streaming subscriptions. They can also be used for one-off payments, like booking a holiday.  

How do I set up a Direct Debit?

Setting up a Direct Debit is simple. All you need to do is pass the following information to the company or organisation you want to send money to:

• Your full name and address

• The name and address of your bank or building society

• Your current account number and sort code

• The names on the account

The company receiving your payments uses this information to set up your regular payment. Before it can do this, you (and your partner, if it’s a joint account) must read and sign a Direct Debit instruction form.

If you set up the payment online, via a mobile app or over the phone, you’ll be sent written confirmation of the Direct Debit instruction. The company will send your instruction to your bank so they know you’ve given permission for payments to be collected from your account.

How do Direct Debits work?

Once your Direct Debit is set up and the payment date is fixed, you can pretty much forget about it. Payments will leave your current account on the same date each month or year. The exception is if that date falls on a weekend or bank holiday, in which case it’ll be taken on the next working day.

How do you change a Direct Debit? 

You won’t need to do a thing if the amount you’re paying a company or organisation via Direct Debit changes, as this will all be arranged by the recipient. For example, you might set up a Direct Debit to pay your Council Tax over 10 months in the year, rather than 12. In this case, HMRC simply won’t process your payment in February and March.

On rare occasions, however, you may need to make changes to your Direct Debit, such as when:

• You marry or change your name

• You change your current account without using the CASS switching service

Note: If you need to make changes to your Direct Debit, allow three days before the payment is due. 

How do you cancel a Direct Debit? 

If you want to stop a Direct Debit all you need to do is contact your bank and tell them to cancel further payments. Alternatively, you can do it through your online banking portal or app. In either case, make sure you give the bank notice of at least one full working day.

You don’t need to tell the recipient, but you may want to, as it may help avoid confusion. It’s also worthwhile letting them know if you plan to continue making payments via a different method. 

Note: you won’t need to do anything if you’re switching bank accounts using the Current Account Switch Service, and want to continue with the payments. In this case, your new bank will just take over the Direct Debit.

Are Direct Debits safe?

You may set up your Direct Debits, but in most cases, that doesn’t mean you’re responsible if something goes wrong. The exception is if any payments don’t go through because you haven’t got the funds in your account.  

In the event of an error that affects you, the Direct Debit Guarantee protects you from any loss. This pledge ensures that you’re compensated if the wrong amount is taken or payments leave your account on the wrong date. 

Note: The Guarantee doesn’t cover disputes with the company or organisation, or if the recipient goes bust.

What is the difference between Direct Debits and standing orders?

There are several important differences between Direct Debits and standing orders. The main ones are listed below:

Set up

Unlike a Direct Debit, you set up a standing order yourself. By contrast, with a Direct Debit, the organisation you’re paying sets it up – you just give your consent. For instance, you could set up a standing order to pay an organisation, company or person. You can also use a standing order to transfer money between different bank accounts. 

Control

With standing orders, you control the process. You can cancel it without needing to tell your bank or the recipient. You fix the amount that’s paid and can amend this sum as and when you want. This makes standing orders fine for paying the rent or making charitable donations, but not for settling utility bills where the sums involved may vary. 

With a Direct Debit, the organisation can adjust what they take from your account as required, making it a more flexible option. However, you retain the right to instruct your bank to cancel payments.

Protection

If there’s an error, such as if a payment fails to happen on the expected date, the Direct Debit system will flag this up. With standing orders, there are no notifications of errors. 

Also, if you set up the standing order, you’re liable for any losses the recipient suffers. With a Direct Debit, the bank runs the operation and is responsible.