What happens if you cancel the direct debit without approval of the company?

What is Direct Debit?

A direct debit is a financial transaction in which you authorize someone other than you, to withdraw certain amount from your account on a mentioned date. It is also a simple, safe and convenient method to manage your household bills or make occasional or regular payments from your bank account. Regular or occasional payments can include anything from gym subscriptions, magazines, dating sites package, packaged bank accounts and so on.

In direct debit, the organization can collect however money you owe them, however they need to inform you in advance how much they are going to debit from your account and on which date. Normally, the duration for the same is ten working days. Direct debit also comes handy in case the amount of bills such as gas bill, electricity bill changes regularly.

Organizing a direct debit is easy to set up and anyone with a current and a basic bank account can apply for the same. You need to be over 11 years of age to use direct debit and once set up, all you need to do is to set up standing instructions for the same. Normally, the organizations you are setting up or authorizing for direct debit tells you what all need to be done. Organisations which are using the direct debit go through very careful vetting process before they are authorized and are closely monitored by the banking industry and to ensure that your rights are protected, all banks offer direct bank guarantee.

It is basically to protect you in the rare event of there is an error in the payment of your direct debit however it cannot be used to address and resolve any contractual disputes between you and the billing organisation. Direct debit guarantee is offered by all banks and building societies which accept direct debit instructions and to make sure that you get full advantage of the mentioned feature.

Also Read: Open Company Bank Account

If You Cancel the Direct Debit without Approval of the Company You need to know the three rules for Direct Debits:
  1. Advance notice: Direct debit guarantee allows you to change you wish to change such as change in amount, date or frequency of a payment in advance and in case you are not given the correct notice of a payment then you will be entitled to claim a refund.
  2. Immediate refunds: Direct debit gives you the benefit of indemnity claim i.e. you can get full and immediate refund from any bank in case any payment is taken into error.
  3. Instant cancellations: Direct debit guarantee gives you the luxury of instant cancellations in case money has been deducted after you have cancelled your direct debit i.e. if a direct debit payment has been taken in error, you will be entitled to a full and immediate full refund and in order to claim the refund, you have to contact your bank either in writing or over the telephone.

Also Read: Telephone Banking Services

Like everything else in life, direct debit comes with its own share of advantages and disadvantages, such as:

Benefits of Direct Debit:

  1. Guaranteed payment: When you opt for direct debit, it ensures that your payment of specified amount is made on the fixed date. It also ensures that in the event of an error payment, your full money is refunded in your bank account.
  2. Saves money: Direct debit is an appealing offer both for consumers and business and in many cases, most of the businesses offer attractive discounts for you paying through the direct debit and thus you end up saving substantial amount per year.
  3. Gives you peace of mind: When you know that your payments are being made on the due date without any late payment, you are at peace. Also the payments are made automatically so none of your bills goes unpaid.
  4. Saves time: In today’s world, everyone is running after something or the other which makes modern life very hectic and thus direct debit helps. In case of businesses paying through direct debit, it means reduced workload and paperwork for the financial department.
  5. Spreads cost: Direct debit allows you to spread your payment over a period that the organization you are paying to agrees to.

Disadvantages of Direct Debit:

Direct debit offers various advantages and makes your life easy however it has its own share of disadvantages. When you use the direct debit facility, you need to be in control and ensure that there is sufficient fund to cover the scheduled payments. Doing so is an easy task and especially if you have an online payment system. So, overall with a bit of planning, you can utilize the direct debit to your best advantage.

Also Read: Business Bank Account

How To Cancel Direct Debit?

The best part with direct debit is that you can cancel it in case you want to do so at any point of time. You can cancel your direct debit for a particular organization by following below mentioned points, like:

  1. Write to your bank: You can cancel direct debit by writing to your bank or over the phone or via secure online banking. Although phone or online banking is an easy and convenient process, it is always better to confirm your instruction writing either via letter or email.
  2. Inform the recipient: It is always better to inform the recipient before you proceed to cancel the payment because firstly it streamlines your work and secondly it saves you from fees or penalties for non-payment. It is always better to include as many information as possible because it will help your bank to process your information and instruction in a better way.
  3. Credit reports: In case you cancel the direct debit without following above two steps, it could affect your credit rating and will appear on your credit line.
  4. Check your statements: It is always better to keep a check on your bank statements to ensure that your direct debit cancellation instruction has been implemented and in case it hasn’t, you can always take corrective measures to do the same.

While giving instructions for cancellation of an existing debit order, you need to include the following information in your letter or email, depending on the mode you are opting for:

  1. The name of the organization you are paying;
  2. Account holder(s) name for your bank account;
  3. Branch sort code;
  4. Bank or building society account number;
  5. Any reference with the organization;
  6. Amount which was getting deducted and the payment date.

While you have decided to cancel direct debit for a particular organization, it is always better to let the company know that you have cancelled their direct debit. However, in case you have an ongoing agreement with them, they have the option to follow you for further payments. For example, if you have taken subscription of online marriage portal for a year and have paid only for 6 months, in this case, the organization can chase you for the balance payment if you cancel their direct debit without informing them beforehand. In this case, direct debit guarantee comes handy because if your account provider makes a mistake and lets the company take money after you have cancelled a direct debit, you can claim your money and get full refund. Also under direct debit, you are entitled for an immediate refund. The very fact that you owe money to the company is something which you need to sort out yourself and has nothing to do with the direct debit.

It is really important to contact the company you are cancelling your direct debit with to avoid any kind of confusion and late payment penalty and it is always best to do the same in writing so that you have your records ready in case of any dispute or confusion later on. You can always go one step further and send a copy of the letter to the organization which you have sent to your bank. Because consider a scenario where you have cancelled the direct debit without informing the company and before full payment is made, they can impose late penalty fees on you.

Cancelling direct debit doesn’t take much and all you need to follow above mentioned steps for the same, however before you do so, you need to double check on two crucial points, i.e.

  • Check if there is an ongoing contract: In case there is an ongoing contract, cancelling the same may be counted as a breach so you need to check if your paperwork is in order or not. Normally there is penalty for an early cancellation, however if you give a prior notice and pay the early cancellation charges, it is always cheaper than the ongoing contract.
  • Treat insurance carefully: It is better to treat your insurance carefully because otherwise you end up thinking that you are paying for something you might not use it. In any circumstance it doesn’t automatically make it good value, however you should think twice before cancelling direct debit for the same.

Also See: Business Start-Up Service

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About the author
Blog Author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.

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About the author
Blog Author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.


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