Word of Advice

21 September 2009

Easy payments

When you are working to pay the bills, sometimes the last thing you feel like doing when you get home is sitting down and actually paying those bills.

A direct debit can be a handy way of making sure your bills get paid without all the hassle each month. But what is the difference between a direct debit and an automatic payment? What happens if there isn’t enough money in your account? Who can cancel the direct debit?

Automatic payments and direct debits

An automatic payment is an arrangement for a specific amount of money to go from your bank account to the recipient’s bank account. These are useful for payments where the amount doesn’t change often, like your rent, savings, loan payments or regular donations.

A direct debit is an agreement that the recipient can take money out of your account to pay your bill. You might use a direct debit for regular payments as well as bills where the amount changes from month to month, like your electricity, phone, or credit card bill.

How to set up a direct debit

You need the recipient to help you set up a direct debit. You will have to fill in and sign a direct debit authority which tells the bank that you give the recipient permission to take money out.

Direct debits are a service provided to you by the bank and the bank must act on your instructions about what payments to make. This service is separate to any agreement that you have made with the recipient (the person or organisation who you are sending the money to).

What happens if there isn’t enough money?

A direct debit can usually take out money even when there isn’t any money in your account. This will put you into overdraft, which you may be charged interest on, and/or pay a fee for. This is different to automatic payments which won’t get paid if there isn’t enough money.

How to cancel

The recipient should cancel a direct debit when you cancel your contract or finish paying them. But, just in case, you should also tell the bank you want to cancel the direct debit. The bank might tell you that only the company can cancel the direct debit, but under the Code of Banking Practice the bank needs to follow your instructions about direct debits.

However, you can’t just cancel the payments and hope that the recipient will get the idea that you don’t want the service anymore. You need to tell them that you are cancelling the direct debit and you either don’t want the service anymore, or you want to pay by a different method. You will need to check your contract with the recipient to see if you are allowed to do that.

Checking your statements

Even though direct debits mean you won’t forget to pay your bills, don’t forget to check your bank statements to make sure the payments match the bills. While you are checking also look for any other strange transactions. If you know you didn’t authorise the transaction then contact the bank. Keeping an eye on your transactions is a good way to protect yourself against fraud.

Trouble shooting

If you are having trouble getting a solution to a problem with a bank you can go to the Banking Ombudsman to get your complaint heard. For more details about this service, check the Banking Ombudsman's website.