Your money: The direct approach to paying bills

Direct debit puts the onus on you to ensure no unauthorised withdrawals are made from your account, discovers Paul Slade
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The Independent Culture
Direct Debits are a convenient way of paying regular bills for customers, but also for the companies collecting their payments.

Instead of having to send out letters to remind their customers a cheque is due and waiting for the cheque to clear, they can take the money direct from your account on the date the bill falls due as an instantaneous electronic transfer. Because this improves the company's cash flow and cuts admin costs, they can afford to pass on part of the saving to Direct Debit payers as a discount on their bills (see box).

According to research, 70 per cent of cable and satellite television bills, 67 per cent of mortgages, 41 per cent of water rates, 40 per cent of TV licences, 35 per cent of gas bills and 34 per cent of electricity bills were settled by this method in 1997. Nearly three out of four households in Britain pay at least one of their regular bills in this way.

But paying by Direct Debit means you are authorising a company to take money from your account with no further permission from you. If a company withdraws more than you have agreed, or continues withdrawals after your contract with them has finished, it is up to you to pick up the problem and report it to the bank.

"We would always advise customers to check their statements to check the Direct Debits are going through for the amounts they're expecting on the dates they've agreed," says Direct Debit marketing manager Fergus Rose. "That's your record of what's going through."

When you agree to pay by Direct Debit, the company involved must send you a schedule giving the size of the payments and the dates on which they will be taken.

If these amounts rise or the dates change - in the case of a mortgage rate rise, for example - they must write to tell you at least 10 working days before.

This should give you time to cancel the Direct Debit if necessary, although doing so may leave you in dispute with the company to which you owe money. If you take no action, the new, higher payments will start automatically. Cancelling a Direct Debit means writing to the company you are paying money to and confirming the cancellation in writing with your bank.

If the bank should let a payment go through wrongly, they will refund your money.

Many people arrange to have the payments taken just after their monthly salary cheque is paid in. Where a withdrawal is made too early and this drives your account into the red, the bank should reimburse any charges.

More cautious bill payers may prefer to use standing orders. These also allow for regular payments, but the date and amount involved can be varied only by the account-holder.