Thursday, September 20, 2012

Private And Public Sector Organisations Prefer Direct Debit

The rise in popularity of online banking has led many British consumers to abandon traditional payment methods, such as cash or cheque, in favour of automated payment methods, such as direct debit. As a result, many organisations have had to expand the range of payment options they offer.

According to one estimate, over 3.3 billion direct debit payments were processed in 2011, an increase of two-thirds on the number processed ten years earlier. One of the reasons direct debits are becoming widely accepted is their flexibility. They are ideal for recurring payments of the same or varying amounts on the same or varying collection dates. They are also less expensive, in terms of transaction costs, than traditional payment methods, including credit cards. They are also immune to the effects of unexpected events, such as postal strikes, which can play havoc with payment methods that rely on paper. Their only real drawback is that they not suitable for one-off payments.

Public sector organisations are always looking to improve their efficiency as an alternative to making job cuts. As a result, many public sector organisations, including local councils, the Driver and Vehicle Licensing Agency (DVLA) and TV Licensing, now offer direct debit as a payment option for Council Tax, business rates, commercial and domestic rent, road tax and many other recurring payments. In fact, many private and public sector organisations offer discounts to encourage consumers to pay by direct debit.

Direct Debit Guarantee
Direct debits for the public sector provide certainty for both parties that bills are paid on time. If a direct debit payment fails, both the payer and payee find out quickly and can take prompt action to rectify the situation. Furthermore, the Direct Debit Guarantee entitles consumers to a full and immediate refund if an error is made in the payment of a direct debit from their bank or building society account, regardless of who actually made the error. Direct debits can only be set up for payments to approved payees, who are subject to rigorous quality control procedures and must provide indemnity guarantees through their banks, so unscrupulous organisations cannot take payments that are not due to them.

Direct Debit Versus Standing Order
Over 75% of British consumers already pay their Council Tax by direct debit or standing order. The principal advantage of direct debit, however, is that the payee can make amendments to the payment amount without needing to obtain the payer's signature on each occasion. The payee must, however, give advance notice, typically 10 working days, of any change(s) to the payment amount and collection date. If the collection date falls on a weekend or bank holiday, the payee must take the payment after the due date, unless they give advance notice. Most bank and building society accounts, including some special savings accounts, accept direct debit payments. Banks and building societies retain the details of 13 months from the date of the last payment. At the end of this period, known as a dormancy period, the payee must obtain the authority of the payer to continue collecting payments.

Peter Smith holds a Master's Degree in business administration and has worked extensively in the public sector during his career. He regularly writes about automated payment methods, including direct debits for the public sector, for a range of business-related websites and blogs.

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