There was a local company, that I used to help out, who went under – but could have been saved – had their business banking advisor informed them about this little trick.
There are loads of different ways to pay someone, Standing orders, Faster payments, CHAPS, cash, you can pay on social media platforms like Facebook messenger, PayM, Card payments (chip n Pin and contactless), through your mobile…the list goes on! One way is of course – Direct Debits.
I know a lot of people don’t like using direct debits, and a common reason behind this, at least is that ‘People can take out any money from my bank account at any point’ which – in theory – is right…however, it’s not legal – if someone takes money out of your account without any prior say so or consent – it’s called ‘nicking money’ and nicking people’s money is generally frowned upon!
Starting from the beginning, direct debits and standing orders are the most similar method of making a payment, but also they are very different, the end result is the same – you have less money, however, a direct debit is when you have the money taken away and a standing order is when you give it away.
Direct debits are an electronic instruction to be allowed to remove money from your account to pay a business. They are considered a variable mandates (Unless stipulated) as they can change – think Gas bill or mobile phone bill…Standing orders don’t change – unless you change them, so these are ‘fixed mandates’.
Some direct debits are regular payments (like a council tax bill) and some are only activated on an ‘as and when basis’ (think paypal or when you purchase something from ebay).
Direct Debits are usually pretty flexible in how they are set up, most companies will allow you to fix them. There are differnt ways you can “fix” the amount that you are paying. You could fix the amount of money or fix the % of what you are paying.
The different ways are – the minimum amount (which is usually a percentage of what you owe), a fixed amount, or for the full amount owing.
So if you have a credit card for example, you could pay by direct debit in 3 different ways:
In order for businesses to have the ability to set up direct debits on their customers accounts, it often involves DBS checks and parting with thousands of pounds. Assuming that a business has the money, then they could (In theory) take out whatever money they wanted, however – as I said before this is theft and they’d be quickly shut down. To stop this from happening, direct debits are covered by ‘The Direct debit guarantee’. Now – everyone who has ever signed a direct debit mandate, electronically or physically would have seen one as its attached usually below where you sign, it even says ‘To be retained by the customer’ but very few people ever actually check it or read it. The Direct Debit Guarantee is there to protect the business and the person. It Reads:
In other words – if a payment is taken out of your account too early, for too much, too many times, or comes out and you have no idea who it actually is, then all you have to do is contact your bank. They will give you an immediate refund – not 4 days – not 10 days – straight away!
This is where that business I mentioned earlier went wrong. They had an electricity bill taken from their account for the value of £900 – it was actually the electricity company that was reading their meters so it was, by no means, the businesses fault. Had their business manager told them that they could get a full and immediate refund, then it would have bought them at least another week.
It turns out that the payment taken, caused a few of their bills to then bounce and they couldn’t afford to pay wages and the electrician. When the electrician learned that they weren’t going to get paid, they then called on their credit agreement (which they can do) to be paid in full, immediately- which of course meant that they would default even further. Long story short, they had to set up a CVA (Company Voluntary Agreement) to try and settle their debt and eventually they had to fold the business.
Had they had the money reimbursed, everyone would have still got paid and they would have probably set up a debt management program with the electricity company – assuming it was a genuine error on the electrical companies’ behalf.
Direct debits are one of the safest ways to pay someone. It’s recorded electronically and its guaranteed (You can get your money back incase of the above reasons.) Nothing else can do that.
This guarantee is for both personal accounts and business banking account customers too.
There are also other advantages to paying by Direct Debit – not only are you covered by the above – but some companies will give you a discount just for paying in this way! So you can save money too.
On your bank statement – if your direct debit bounces (Because you haven’t got enough money in your account) It will show the money leaving, then coming back into the account. With a standing order (Under the same circumstances) the money won’t leave in the first place. This does make things a bit confusing when trying to work out why you were charged – because it doesn’t show your account ever going overdrawn.
If money is recalled then it is worth noting that if it proven that you do indeed owe the money, then the company can try and take the money back out of your account, or they may have to arrange a debt management program or scheme with you.
If you have had any problems with your bank or a company about a payment that is disputed, then get in contact with me, if you have any questions that want answering – then email me at Adam@itsthemoneyguy.com I’d love to know about your experiences and help if you need it!
If you have any questions relating to money or starting or running your own business, feel free to send me a message by simply clicking on ‘Get in touch’ alongside.