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How does direct debit work?

Direct Debits are a financial transaction where a company or person takes funds from the others bank account. From a customer point of view it allows the organisation to collect money at scheduled times and amounts from your bank account that have been pre-agreed.

In this guide we'll detail all there is to know about Direct Debits so you can be informed as a business and customer. Click the links to jump to the section:

Direct Debits For Businesses

What is a Direct Debit?

A Direct Debit is a simple and easy way of making regular and occasional payments to a business. 

Before a bank will allow the transaction to take place, the payer must authorise the bank that they are allowed to draw the funds from their bank account. 

Once agreements are in place, money is deducted automatically. If any changes to frequency, date of collection or Direct Debit amount the organisation has to inform the customer first before it can be processed. 

What can Direct Debit payments be used for?

The most common transactions people use Direct Debits are:

  1. Utility bills - People use Direct Debit to pay things like their electricity bills or council tax or even their mobile phone bill. If you're a utility company or phone service provider you can easily streamline your customers payments

  2. Gyms and fitness memberships - Fixed subscriptions or memberships are the easiest way for your customers to make their recurring payments to services like sports clubs and magazine subscriptions

  3. Donations - Regular giving to not-for-profits hugely relies on people transferring a portion of their monthly wage to a charity of their choice via a Direct Debit

  4. Insurance payments - Monthly life insurance or car insurance premium collections through to processing insurance claims are made far easier with Direct Debits in place

  5. Health and social care- setting up regular payments to care homes for example

  6. Education - Many schools and colleges are now accepting Direct Debit payments for tuition fees

  7. Financial services - Accountants and brokers are common financial institutions using Direct Debits so their customers can easily pay for their services

  8. Software - Web development or digital marketing services for example can benefit hugely from on-time payments from clients.

....any many more.

Speak to an expert

Want to set up a Direct Debit for your business? Get in touch and one of our handy team are on hand to talk you through your questions. 

How to set up a Direct Debit for your customers

You'll need to get set up with Bacs and join the Direct Debit scheme in order to start to accept Direct Debits from your customers. 

1: Speak with your bank

Get in touch with the bank handling your business transactions to talk about Direct Debits. There are a few administrative aspects to go over before you can join the scheme.

2: Choose a direct debit company

To make your payments simple, find a payment specialist (like us!) or a Bacs approved bureau. 

Depending on what type of business you are and who you choose to go with you may need to get a Service User Number (SUN) from your bank. Our guide goes into more detail about how to obtain a service user number.

3: Get direct debit mandates from your customers

To be able to actually collect the money from your customers you'll need to get a Direct Debit mandate, also known as a Direct Debit Instruction (DDI).

This is an integral part of the Direct Debit Scheme which gives permission from the customer for you the business to collect payments from their bank.

Customers need to sign these DDIs, we offer online or paper forms, as well as telephone approval to make things easier for you. 

Direct Debit rules

When setting up payment solutions for your business, it's important to make sure you understand what rules are in place to make sure you don't get stung down the line.

All customers are protected by a Direct Debit Guarantee, this is when their bank that gives your customers an immediate refund should a payment be taken from their account that was not agreed. It's up to you as a business to ensure that any changes to Direct Debits are communicated to your customers or you could find yourself with late or failed payments and reconciliation nightmares. There is an appeals process you can follow should you believe a payment should have been met.

You are required to give your customers an advance notice which states the amount and date of each payment in advance.

Request a demo

Want to know more? Speak to our friendly team who can talk you through our payments solutions. We offer direct debits with simple, affordable pricing, with no set-up fee and transaction fees as low as 4p.

Frequently Asked Direct Debit Questions

What if there’s a problem with a Direct Debit?

The Direct Debit Guarantee protects customers. If a mistake is made by a business the bank makes sure the customer will get a refund.

Which business use Direct Debits

Direct Debits and Recurring Payments can suite a whole suite of businesses including; Subscription payments, Utility companies, Rental organisations, Phone companies, Gyms and sports clubs, Software companies, Retailers & merchants, Game companies...And much more.

How do I set up a Direct Debit
  1. Choose a direct debit provider and integrate with your current accounting software
  2. Add customers and invite them to pay through direct debit via a form
  3. Set up your payments: You can use it to collect recurring or one-off bills.