Direct debit (or automatic debiting) allows to automatically pay invoices that are repetitive in character. The holder of a bank account (debtor) authorises in writing that a creditor may withdraw any amount due from the debtor's account.
In principle, the due dates or amount of a direct debit are not fixed. This means of payment lends itself to modern processing methods, particularly electronic processing.
Objective: it is used to settle (pay) any type of invoice of a repetitive nature for which the amount may vary (telephone, electricity, gas, water bills, etc.).
Who is concerned
Available to the self-employed and any type of business, payment by direct debit applies in the following cases:
- initial set-up (electricity, water, gas, telephone, etc.);
- change of office, telephone, electricity suppliers, etc.
- both the business authorising the direct debit and the beneficiary must have a bank account;
- the creditor can only initiate a payment (request payment) if it has a direct debit mandate duly signed by the debtor;
- SEPA direct debits require the mandatory use of an IBAN (International Bank Account Number) and BIC (Bank Identifier Code) to identify the debtor’s account;
- the debtor’s bank account must have sufficient funds or have a sufficient credit line for the payment to be made when requested.
How to proceed
The direct debit is valid until cancelled by the debtor or creditor.
- cancellation of the direct debit: at any time in writing;
- objection to a deduction made: possible to oppose a payment.
Payment time frames
The time required to set up a direct debit and the payment time frame vary depending on the bank.
Advantages, disadvantages and risks
- automatic (no intervention required for this means of payment);
- no need to check whether invoices have been paid or not (subsequent checks can still be carried out);
- transfer considered to be irrevocable as soon as the ordering customer’s account has been debited, so the debtor cannot undo the transaction;
- a small discount may be obtained from suppliers since this type of payment generally ensures quick payment.
- it is not possible to check the accuracy of the amount which will be debited from one’s account;
- the terms of payment given to debtors is greatly reduced, since the payment request is generally made a few days after the invoice is drawn up;
- the direct debit authorisation alone does not confer ownership of the amount in question; the debtor’s account must still have sufficient funds when payment is requested.
The debtor's account could be debited by an excessive amount and invoices may be disputed.