How does Direct Debit work?

If you want to pay a company or an organisation using Direct Debit Collection need to set up your Debit with them directly, and the process is simple. Whether you set your Debit up in writing, in person or over the phone, you’ll need to have a clear record of an agreed date for the Direct Debit payment to be made, as well as a frequency.

The good news is you’ll usually have the freedom to choose the dates your Debits leave your account to suit your lifestyle and finances. For example, many people choose to have their bill payments leave their accounts just after their paydays, so there’s less room for any problem covering the payment.

The easiest way to set up a new Debit is to fill in a Direct Debit Instruction, which you’ll need to get from the business you’ll be paying. Many companies will be able to let you complete this using an online direct debit collection on the company’s website to make things easier, or you can even do this step over the phone. Once the Instruction is completed, the company will forward it on to your bank or building society, and they’ll be authorised to collect the payments straight from your account.

Going forward, if you ever have a problem or think you may fail to cover a payment, it’s best to inform your bank in advance and see what they can do to help. If they wish to make any changes to the way your payments work they’ll need to give you formal notification up to ten working days in advance.

As soon as you enter into a Direct Debt, you’ll be covered by the Direct Debit Guarantee, and any payments taken in error will be refunded immediately by your bank or building society.

Commonly used Direct Debit Terms

Because it’s important to understand the Direct Debit process, we’ve compiled some more commonly used terms and clear explanations of what they mean.

“Paperless Direct Debit”

A term you’ll see and hear more and more frequently is ‘paperless Direct Debit’, and this simply means a Direct Debit Instruction that’s arranged via a phone call of online, so there’s no paperwork or form filling involved.

“Due Date”

Next it’s ‘due date’. This term is used to refer to the date a collection is due to be made, so it means the date your funds will leave your account according to your Debit agreement. The next term is ‘counter-claim’, and this is a claim created by a service user in response to a customer’s indemnity claim.

“Direct Debit Indemnity Claim Advice” (DDICA)

Customers have the right to place an indemnity claim for a refund under the Direct Debit Guarantee, and if the service user disputes their claim then they’ll put in a counter claim. A counter claim must be placed within 14 days of the indemnity claim going through.

When an indemnity claim is raised by an individual, the service user will receive what’s known as a DDICA, or a ‘Direct Debit Indemnity Claim Advice’. This is a notification that one of their customers has put in a claim.

“Direct Debit Guarantee”

Finally, there’s the ‘Direct Debit Guarantee’. This guarantee applies to any Direct Debit collection, and it protects customers who make their payments via the scheme. One of the main ways in which the guarantee is beneficial is that in the event that a payment is ever taken in error, the customer has the right to expect the funds returned immediately by their bank or building society, and it’s their responsibility to pursue reimbursement. The Direct Debit Guarantee offers peace of mind to anyone who relies on the Debit scheme.

How to cancel a Direct Debit

It’s easy to cancel a Direct Debit when you no longer need one, and the procedure is a simple one. You’ll need to get in touch with your bank or building society at least one day before the Direct Debit collection is due to be made (if in doubt, check how much notice your bank needs first to reduce the risk of the payment leaving your account).

If you cancel the Direct Debit over the phone, you may be asked to send an instruction via post to confirm you want to cancel. It’s also a good idea to confirm the cancellation of your Debit agreement with the relevant company, perhaps by sending them a copy of any written instruction you send to the bank to get the collection cancelled.


What information do you need to cancel your Direct Debit?

You’ll need to ensure that you offer the following details when you instruct your bank to cancel your Direct Debit:

  • The company name
  • Your bank account number and your sort code
  • All names on the bank account
  • Any customer reference number from the company you were paying

Make sure you include as much information in your cancellation instruction as possible to make the process easier and simpler. If you have the regular Direct Debit collection date, include it with the above. There should be no debit collections from your account once you’ve cancelled, and if the company wishes to put another Direct Debit in place from your account they’ll need your permission before they proceed.

It’s always a good idea to keep an eye on your bank statements for a period after cancelling, just to ensure that you spot any debits leaving if your instruction isn’t actioned. The sooner you realise and let the bank know, the sooner they can ensure you’re issued a full refund.

Have a look at our infographic with the 4 easy steps of correctly canceling your direct debits: