Uncover the facts behind automated Direct Debits


Gordon Martin

Automated payments from your bank account are numerous and complex. Here in the UK, a common and well used method is Direct Debit. In essence, Direct Debits have been created in order to help you manage your money better. They can be used in different ways and for different purposes depending on your needs. The following guide will help with your understanding of the facts behind automated payments including Direct Debits. For example; what a Direct Debit is, how it can be used, and the many ways it can be used to manage your cash flow and help you avoid payday loans.

In case you're unfamiliar with what a Direct Debit is or have heard about it before but are unsure of what it's all about, a Direct Debit is a payment system where creditors are authorised to collect money from your account directly. This can be on a one-off basis but more likely to be on a regular basis. You should, however, always be given notice regarding when the payment going is to come out as well as how much should be deducted.

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What can a Direct Debit be used for?

The next thing you may be wondering is what exactly a Direct Debit looks like in practical terms and what some examples of them are. Some common examples of Direct Debits include:

  • Council tax
  • Gas, electric and water bills
  • Loan and payment card repayments
  • Subscriptions
  • Phone and media bills
  • Fines

Direct Debits essentially make life a bit easier as they come out of your account and save you the hassle of having to remember when to pay your bills or go to the bank.

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How does it help your finances?

You may be wondering how setting up Direct Debits can help your finances and the reality is that it can do so in many ways. Aside from helping you be far more organised, especially if you lead a busy life, there are numerous other benefits that will be mentioned below.

One of the first ways that Direct Debits can help your finances is by helping you avoid late payments. If you've ever paid any of your bills late before, then you can probably attest to the fact that it can completely throw your finances off balance. You should, therefore, consider setting up a Direct Debit for all of your bills and choose days that you're certain that there will be money in your account. It is a way of being organised in terms of your finances and giving you one less thing to stress about. Late payments can also have many other negative effects which will be mentioned below.

Another way that Direct Debits can help your finances is by helping you avoid unnecessary fees. Late payments usually mean that you'll be charged by the person you're owing money depending on their policy. Late payment fees can have a negative effect on your finances because it's an unforeseen expense. It could result in needing payday loans to help you cover emergency bills before your next payday comes around. Unnecessary fees, if recurring, could also have a domino effect and cause you to fall behind on your other bills which is something that you want to try and avoid.

Another way that Direct Debits can help your finances is by helping you to improve your credit rating. If you have a bad credit history, then you could consider Direct Debits to help avoid late payments which can affect your credit rating. Payments made on time show that you are able to borrow responsibly and that you can pay money back at the right time every time.

Staying organised is key, especially seeing as life often gets busy. Between work, managing everyday activities, and other things it can be easy to forget about the bills you have to pay. However, by setting up a Direct Debit, you ensure that even if you forget, your bills are still paid on time. Organisation is key if you want to have healthy finances and this is one of many other tools that can help you stay on top of things on a regular basis. You can also rest assured that Direct Debits are safe and secure and should ensure that your payments are paid to the right person and at the right nominated time.

Choosing to set up a Direct Debit may also improve your finances as it can help better your money management skills. This is because, in order to successfully have Direct Debits coming out of your account every month, you need to do a level of budgeting. This would include knowing how much is going into your account every month and what times of the month they do. You would then need to arrange your Direct Debits in a way that ensure that you have enough in your account if you don't want to have to deal with bank charges due to insufficient funds.

How do you set up a Direct Debit?

If you want to set up a Direct Debit, the first step would usually be to check the process with the organisation that you want to set up the payment with. You should also know that banks don't charge to set up a Direct Debit, so it should be completely free to do so. Typically, you'd have to fill out a form that consists of your details, the day you want the Direct Debit to come out, how much they're going to be taking and how regularly you'll be debited. In case you happen to be wondering whether or not a Direct Debit can be cancelled, it usually can by contacting your bank and asking them to do so. In some cases, you can also cancel via your online banking platform which should be a lot easier.

In terms of who can use Direct Debits, anyone with a basic or current account is able to set one up. Sometimes, prepaid cards or credit union accounts can also do so as well. However, post office accounts aren't usually able to do Direct Debits. In terms of age, you usually should be over eleven but it's always best to verify with your building society or bank just to be sure.

What if you don't have enough to cover the collection?

Following on from an earlier point, you should ensure you have enough in your account when you decide you're going to have Direct Debits coming out. If not, you could find that they're counterproductive as you end up behind on bills or paying extra in bank fees. Every bank's policy is different when it comes to charges for insufficient funds being in your account when a Direct Debit comes out. Usually, if you don't have enough funds in your account to cover a Direct Debit, it could be refused by your bank and you could be charged anywhere between £5 and £25, depending on who you bank with. In some cases, the bank will agree to pay the Direct Debit, however, it means your account is most likely going to end up going into overdraft and will be on red. If you don't have an overdraft agreement, that again means extra charges. Some tips for ensuring you don't fall into this trap include having separate accounts for your bills and for everyday spending or using apps as reminders so that if you don't have enough in one account expecting to be debited, you can make a deposit or transfer. You can also write it down in your notebook or anywhere that you'll notice it making it more difficult to forget upcoming debits.


If a mistake is made, you should know that the Direct Debit Guarantee Scheme has you covered. Essentially, it covers all banks as well as building societies that are covered in the scheme and makes it necessary that all firms advise customers if there has been a change in payment. In addition to this, the scheme ensures that if a mistake is made by the bank or building society the customer is guaranteed a full refund immediately. It also says that customers can cancel a Direct Debit at any time by simply writing to their bank or building society. You should note, however, that the Direct Debit Scheme doesn't cover payments that were made by debit or credit card.


If a firm wants to change a Direct Debit, they have an obligation to inform you. They usually do so by writing via letter, email or on their website. Deciding to set up a Direct Debit can be a good idea. It's a way to ensure that you stay on top of your bills as well as manage your finances much better. However, as mentioned above, it's key that you remember to always have enough in your account to avoid a series of charges and expenses that you don't need. A Direct Debit can be used to pay general bills, payday loans, and any organisation that you may be owing money. By using them in the right way and being as organised as possible, they can definitely turn out to be a good idea.


Hopefully this guide has helped you uncover the facts behind Direct Debits and how they are used. It is surprising for such a well-known and well-used method of payment for everyday goods and services, that there is such confusion out there. However, the more you understand about the way banking and finance works the better.

Direct Debit is just one example of the complex automated credit and debits that we all engage with on a daily basis, for more check out the Money Advice Service.