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How Direct Debit and Subscription Payments Can Help You Manage Money

How Direct Debit and Subscription Payments Can Help You Manage Money

Imagine having your own financial manager who is able to ensure all your monthly payments are paid in full and on time. Welcome to the world of direct debit payments.  

Paying in this way is easy, efficient, and secure. It might also save you a few quid and help you to manage your money. That means you'll always know exactly how much you have in the bank. Here's how it all works.

Setting up a Direct Debit

A direct debit instruction tells your bank to allow a company to take money from your account. 

The organisation is then able to dip into your account and take whatever you owe them. The process is though very well controlled and safe.

Companies are, for example, obliged to tell you in advance how much they will be taking from you, when they'll be taking it and how often.

The company collecting the payments will normally ask you to fill in a form. You would then sign this and send the form back to them. You can also set up direct debits online or over the phone.

The companies involved will let your bank know that you've agreed to make direct debit payments. You can cancel a direct debit at any point by contacting your bank. You might even be able to do this through your bank's smartphone app. 

The Benefits of Direct Debits

Direct debits are a handy way to pay bills for broadband, gas, water or electricity. They'll save you time and effort. They just make life easier because the onus is no longer on you to remember when to pay your bills.

Many utility providers will give you a discount for paying by direct debit. This is partly because direct debits make their life easier too. It avoids them having to send reminders when bills are not paid, for example. 

If errors are made, the bank will correct the payments in question so that you're never out of pocket. Banks will not charge you for making or setting up direct debits.

Managing Your Money

You can usually set the date you want payments to be taken from your account by talking to the organisation concerned.

Let's say your salary is paid into your bank account on a certain day of each month.

It makes sense to try and have all your direct debits and any other recurring payments coming out of your account on the same day. You should aim for this to happen two or three days after you get your salary.

The advantage of that is it allows you to see at a glance how much money you have left after these payments have been made. That can really help you to budget more efficiently and manage your money and savings more effectively.

Sufficient Money in Bank Account

It might happen that there are insufficient funds in your account on the day the direct debit is to be taken. This could be due to an oversight on your part or some unforeseen circumstances.

There are dangers here. It's important to be very careful that you always have enough money in your account to pay your direct debits. If you don't, the bank can refuse to make the payment. This could affect your credit score.

They may also penalise you with a charge of between five and twenty-five pounds. Even if they do make the payment, that might still put you into the red. That, in turn, could end up meaning that you'll have to pay overdraft charges and interest.

The 'Retry Process'

This process gives you until two pm to pay funds into your bank account to cover the payment. That then allows the bank or building society to retry getting the money they're due from you later that same day.

A lot of banks will try and get in touch with you if a payment has failed. That might then give you enough time to pay some money in. If they don’t offer this service, you may want to think about switching to a provider who does. 

The best advice is to keep a close eye on things using a banking app. If you do run into problems, never bury your head in the sand and always engage with your bank. 

Subscription Payments

Paying subscriptions for magazines and gym memberships can also be done efficiently by direct debits. It allows you to spread these payments over the whole year rather than making one-off big payments.

This can be very useful if you don't have sufficient funds at the time for a large bill. Companies may also offer you other incentives to pay by direct debit.

For most businesses being paid in this way is better for them. That's because it allows them to plan their operations better and know exactly how much money will be coming in each month.

Subscribing to companies whose products you use can also save you time and money. Buying groceries and clothes online, for example, cuts out all those trips to the shops. Goods can typically be cheaper as online shops have fewer overheads.

Subscription payments allow you to manage your shopping and money from the comfort of your own home. That means freeing up more time and using less petrol as you won't need to drive to the shops so often. 

Are Standing Orders Different to Direct Debits?

The simple answer is 'yes,' although they are similar. Standing orders tell your bank or building society to make regular payments to a specific account.

You choose the amount to be paid, rather than an organisation collecting what they're owed. You can use standing orders to make regular payments into a savings account or for rent and overpayments into a mortgage account, for example.

Getting Your Finances in Order

Using the direct debit system is an excellent and foolproof way to make sure you pay your bills on time and in full. Most businesses prefer them and may also offer you incentives to pay in this way.

Continue reading our blog for more useful financial tips. Find out here about three creative ways to start saving today even on a tight budget.