Direct debit is a financial transaction in which one organization withdraws funds from a payers bank account. It is an instruction from the payer to their bank or building society to let an organization take money from their account. Direct debit is also known as automatic transfer, authorized withdrawal, and auto-pay. The payer authorizes someone to collect payments from their account when they are due, for example, an accountant collecting a regular fee or Netflix collecting a monthly subscription. Direct debit is a payment method for recurring payments in the UK and is the third most popular payment method in the UK, after cash and debit card. Direct Debit was invented by Alastair Hanton while he was working at Unilever as a way of collecting payments more efficiently and commenced operation, as a paper-based system, in 1964.
Direct debit is a safe and easy way to make recurring payments like magazine subscriptions or gym memberships. It can also be used for one-off payments. Direct debit is a convenient alternative to other bill payment methods where the payer has to remember to mail a paper check, drop off cash, or pay with a card via the phone or online. With direct debit, the payer only needs to provide their bank details once, and then they enter into a standing agreement for their bank.
To set up a direct debit, the payer needs to complete a Direct Debit mandate form, which can be a paper form or a web page that they complete online. The organization that calls for the funds ("the payee") must be authorized to do so by the payer. The payee must also give advance notice of the amounts and dates of collection, and if they want to change an amount or date of collection, they have to tell the payer about it first.
In summary, direct debit is a payment method that allows an organization to withdraw funds from a payers bank account. It is a safe and easy way to make recurring payments and can also be used for one-off payments. The payer authorizes someone to collect payments from their account when they are due, and the payee must be authorized to do so by the payer.
