Standing Orders And Direct Debits

The technical banking term for standing orders and direct debits is 'pre-authorised payments'. In other words, they are arrangements agreed in advance and in writing for the payment of given amounts at given times. Your bank or building society will continue the pattern of payments until you instruct in writing that they be altered or discontinued - you may be required to give a period of notice. Standing orders are the older of the two systems but have to some extent been superseded by direct debits which now account for one in eleven of all non-cash transactions.

Standing orders This mechanism is most useful where you need to pay equal amounts at regular intervals - for example £100 on the first day of every month. You can use it to pay anyone who has a banking account. You instruct your bank to make payments from your account but if, say, the amount to be paid changes you'll have to tell your bank or building society to amend the arrangement. It's not a very convenient system if the amount to be paid changes often.

Direct debits This is a more flexible system. Direct debits can be set up to pay either fixed or variable amounts at regular intervals. You instruct your bank to allow payments to be made from your account at the request of the organisation that you are paying and in accordance with the direct debit agreement. Usually the organisation provides a prepared form for you to complete and give to your bank.

Letting an organisation take money from your account in this way might, on the face of it, seem a bit risky. But careful checks are made on organisations wishing to operate direct debit schemes, and they must abide by stringent rules. In particular, the amount payable under a variable direct debit can be altered only after you've been given 14 days' notice of the change. If you're not happy with the new amount, you can instruct your bank to cancel the arrangement.

TIP - Standing orders and direct debits are useful ways to help you plan for regular bills and ensure that they are paid on time. But occasionally, check on your account statements that payments are being made correctly - a mistake over paying insurance premiums, say, could leave you without cover. And note that, if a bank can't pay your standing order on the due date because there's not enough money in your account, it's not under any duty to make the payment once more money is paid in - it's up to you to make sure that the payments are brought up to date.

A supplier of goods or services can legally insist that payment

should normally be by some particular method. But if you're not happy making payments by direct debit, try asking the organisation if they'll accept payment by another method. Many will agree. If they don't and you feel strongly about it, you'll have to take your custom elsewhere.

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Bounced Cheques

If a cheque is backed by a guarantee card, it must be honoured by your bank even if there isn't enough money in your account. But without the back-up of a guarantee card, the bank is not legally obliged to pay out a penny more than the amount in your account. In practice, the bank will often pay out if only a small amount is involved, or if you're a trusted customer, or if they know money is shortly to be paid in. If there's enough money in the account to meet some cheques but not others the bank manager is entitled to decide which should be paid and which bounced - he'll try to pay those which seem... see: Bounced Cheques

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