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Financial Dictionary - Bill paid by direct debit
Bill paid by direct debit
A direct debited bill is an instruction sent by an issuer (payee or beneficiary, i.e. a tax authority, an electricity or water utility or a telecoms company) to a recipient (or payer) via their respective banks. The payer will have expressly instructed their bank to credit their account directly.
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It is a secure, fast and convenient method of payment and collection, making it the most popular choice for companies and the self-employed. In fact, many of them insist that their customers pay using this method. Thus, when a commercial transaction takes place between two companies, the debtor will typically ask the creditor to collect payment this way. At that point the creditor's bank will collect payment directly from the debtor's account.
Features of a direct debit arrangement
As individual, or retail customers, setting up debit bills for our bills will save us a lot of time and trouble, as we will no longer have to remember who we have to pay each month and when. It is also a great way of avoiding late-payment penalties, as payments will be made automatically. While we may be reluctant to set up direct debits because of the time it takes, once done we will be thanking ourselves down the line because of all the trouble it saves us.
How do I set up a direct debit?
First of all, we will need to give the following information to our bank: name and account number of the client, payment concept or description and amount. Armed with this information, our bank will instruct our client's bank to make payment, which will then collect the money from the account provided and make the payment. As the final step, our bank will pay the money into our private bank account.
Bank remittances
A remittance is essentially a collection of direct debited bills due for payment. They are grouped into a single file and sent to the bank, making it easier for us to collect and make payment.
SEPA mandate
This is a standard way of making and receiving payments, subject to the same obligations and rights among all members of the Single European Payments Area (SEPA). This mandate establishes the area in which any economic agent (individuals, companies and the self-employed) will have to make payments, subject to common conditions. Our bills will also be paid by direct debit in accordance with this European standard.
Through a SEPA order, our client authorises us to debit their account and authorises their bank to release the amounts due. It is very important to keep this SEPA mandate in effect over the duration of our relationship with the client, especially over the agreed repayment period and for the statutory document retention periods. This way, we can avoid nasty surprises down the line.