Most companies who issue bills monthly or quarterly prefer to receive payment via direct debit. This is because it so much cheaper and easier for them to process an electronic instruction than it is to have to wait for a physical envelope containing a cheque to arrive which must be opened an processed by a real person. The rate of non payment among direct debit customers is usually far smaller than that among cash customers, who despite the term used, are usually never allowed to actually use real hard cash to pay.
Because of this preference, customers are often offered incentives to pay by direct debit.
e.g.
Banks can, and do, charge lower rates of interest on loans or credit cards.
Power and Telephone companies offer lower fixed monthly charges.
Clubs, and similar organizations, sometimes waive initial joining fees for members paying subscription via direct debit.
So, it would seem that direct debits can benefit everybody.
There is, unfortunately, a darker side. By signing a direct debit mandate you allow the banking system to play fast and loose with your money in a way which can go horribly wrong. My rant on this subject originally read something like this …
“Contrary to the propaganda issued by BACS, Direct debit is nothing less than a manifestation of true evil; an automated method by which various commercial organizations can trick you into letting them steal from you.so called guarantee offered is actually worth very little. In reality there is nothing to ensure that amounts taken have really been authorized by you or that the 14 day notice really has been given. It is all smoke and mirrors.”.
Let me explain
.
I have worked on direct debit software and know that for example, before paying out, your bank will not check that you have actually signed a direct debit mandate, will not check that the debit is for the correct amount, and will not check that you have been given the required amount of notice necessary in the case of what is called a variable direct debit. If something goes wrong the onus is on you to establish that an error has been made.
An example of this is that my company once, a long time ago, produced software which went live unable to distinguish between pennies and pounds, i.e. we got the position of the decimal place wrong. Instead of taking say 50.00 from someone's account we would take 5000.00. This happened to thousands of people and made front page news in a national newspaper. ( I think it was The Sun, and the headline was YUPPIE PHONE BILL HORROR).
It can also sometimes be very difficult to stop a direct debit once it starts. That's something I have personally been on the receiving end of. I once lost more than 300 UKP to an insurance company who insisted on collecting another years worth of premiums from me without my knowledge.
So, if I may summarise, direct debit is a bad thing