Direct debit
Direct debit is a procedure for cashless payment transactions.
The payee instructs the payer’s bank to debit a certain amount and credit it to the payer’s account. The payee determines the amount.
There are two parties involved in direct debit payment method: the payee’s financial institution (also referred as the “first collection agency”) on one side, and the bank of the party obligated to pay (“last collection agency”) on the other end. Direct debit is regulated by the “Agreement on Direct Debit Transactions”. All banks, including savings and credit unions, have joined this agreement; it means direct debit is always uniform, regardless of whichever bank is involved.
Direct debit is the counterpart to bank transfer; since in the case of direct debit the payment is initiated by the recipient, whereas in the case of a bank transfer the payment is triggered by the debtor in order to meet his payment obligation.
In the case of a direct debit, the debtor instructs his bank in advance to honor direct debits from a specific payee for a fixed amount. An objection is not possible after the debit is performed.
Although the situation is different with “direct debit authorization”, where the debtor directly authorizes the payee to collect a specific amount.
Here, the customer can object to the authorized direct debit within a period of six or eight weeks. An “authorized” direct debit is a direct debit that is based on the debtor’s express consent. In the case of unauthorized direct debits, i.e. without the debtor’s express consent, an objection period of thirteen months applies. Within this time frame, objections can be made during any time, and without giving a reason.
Direct debit is the standard direct debit procedure for customers. If the customer does not agree with the direct debit transaction, he or she can revoke it, it affects the amount debited to be reversed and credited back to his account. Booking errors or insufficient funds in the customer’s account can also trigger a reversal (return debit). For the company, this means that the customer’s issuance of a direct debit authorization is no guarantee for payment security, unlike the direct debit procedure.
To summarize, the direct debit procedure is a better way for a company to collect money as it offers security. For consumers, on the other hand, direct debit is a practical option: they do not need to fill out any transfer forms or go to a bank. A direct debit authorization also ensures that the transfer is made on time. But always the decision whether to use the direct debit procedure or the direct debit authorization for direct debit is based on the agreement between the company and the consumer.
