Direct debit is one of the easiest, efficient and fastest ways to pay your periodic bills. Direct debit facility is offered by several banks in many countries like United Kingdom, Switzerland, United States of America, Spain, Germany, South Africa and many more. Though the basic concept of this system remains fairly same, the transactions and rules of transactions may vary according to national territories of a country.
What is a direct debit?
In simple words, direct debit or a direct withdrawal is that transaction in which an authorised person draws from another person’s bank account following a prior notice and agreement between the two parties. For example, consider the payment of a utility bill like your gas bill which requires you to issue a cheque every month to the gas company. With this facility, you can allow the gas company to directly withdraw a specified amount from your account at a specified day which will reduce the hassle of you directly paying the bill.
Are there any risks? What are the benefits?
The risk involved is very less because you have the complete authority over the amount which is to be debited. Only the agreed amount of money is allowed to be withdrawn by the “payee” (the company/person receiving money from you) on an agreed date. The agreement can also be dissolved at any point of time.
There are many benefits with direct withdrawal:
- Primarily, it reduces the hassle and confusion arising out of paying periodical bills because they get automatically paid from your account.
- Even though the payee has an authority to withdraw money, the ultimate right is vested in you. You may change the amount of money, day on which it will be withdrawn etc. at any time by issuing a notice to the bank and the payee.
- Once the agreement is set up, there is very little hassle on your part. You simply need to ensure sufficient balance in your bank account on the day specified to make it easy for withdrawing.
- If at all there has been a debit error, your bank is obliged to refund it back to you as soon as possible and then claim it from the payee. In this way, your money is always safe.
- You can also cancel the direct debit whenever you want to.
- The bank also keeps a record of all the direct debits for a period of 13 months from the last payment, which is called the dormancy period, if you ever forget to cancel a direct debit.
Life sure is a lot easier with systems like direct debit and tax credit. If you are a single parent and find it difficult to handle your financial situation, make sure you have tax credits phone number handy to enquire if you are eligible for tax credits.