A direct debit or direct withdrawal is a financial transaction in which one person withdraws funds from another person's bank account. Formally, the person who directly draws the funds ("the payee") instructs his or her bank to collect (i.e., debit) an amount directly from another's ("the payer's") bank account designated by the payer and pay those funds into a bank account designated by the payee. Before the payer's banker will allow the transaction to take place, the payer must have advised the bank that he or she has authorized the payee to directly draw the funds. It is also called pre-authorized debit (PAD) or pre-authorized payment (PAP). After the authorities are set up, the direct debit transactions are usually processed electronically. Direct debits are typically used for recurring payments, such as credit card and utility bills, where the payment amounts vary from one payment to another. However, when the authorisation is in place, the circumstances in which the funds are drawn as well as the dates and amounts are a matter of agreement between the payee and payer, of which the bankers are not concerned. In countries where setting up authorization is easy enough, direct debits can also be used for irregular payments, such as for mail order transactions or at a point of sale. The payer can cancel the authorization for a direct debit at any time, and the banker can decline to carry out a debit if the transaction would breach the terms of the bank account out of which payment is to be made, for example if it were to cause the account to overdraw. (Banking law does not authorize a bank to alter the payment amount.)
A direct debit instruction differs from a direct deposit and standing order instruction, which are initiated by the payer. A standing order involves fixed payment amounts paid periodically, while a direct deposit can be of any amount and can be casual or periodic.
Direct debits are available in a number of countries, including the United Kingdom, Brazil, Germany, Spain, South Africa, Switzerland, and the Netherlands. Direct debits are made under each country's rules, and are usually restricted to domestic transactions in those countries. An exception in this respect is the Single Euro Payments Area which allows for Euro-denominated cross-border (and domestic) direct debits since November 2010. In the United States, direct debits are processed through the Automated Clearing House network.
A direct debit instruction must in all cases be supported by some sort of authorization for the payee to collect funds from the payer's account. There are generally two methods to set up the authorisation:
One method involves only the payer and the payee, with the payer authorizing the payee to collect amounts due on his or her account. However, the payer can instruct his or her bank to return any direct debit note without giving a reason. In that event, the payee has to pay all fees for the transaction and may eventually lose his or her ability to initiate direct debits if this occurs too often. However, it still requires the all account holders (not merely the payer) to watch statements and request returns if necessary, unless they have instructed their bank to block all direct debits.
The other method requires the payer to instruct his or her bank to honour direct debit notes from the payee. The payee is then notified that he or she is now authorised to initiate direct debit transfers from the payer. While this is more secure in theory, it can also mean for the payer that it is harder to return debit notes in the case of an error or dispute.
Direct debit in different countries 
In Europe, the SEPA Direct Debit (SDD) payment system is available in each SEPA country for payments from and to any SEPA country (regulation 260/2012).
United Kingdom 
In the United Kingdom, a direct debit requires the customer to authorise a direct debit instruction with their bank. This task is carried out via the service user (payee).  Companies or organisations wanting to use direct debits to collect customer payments must have a SUN (service user number). This can be done in two main ways: through requesting sponsorship by their bank to help with a formal application process or by using an outsourced company to obtain a "Facilities Managed SUN" and handle the payment processing.
Over 70% of adults regularly pay by Direct Debit in the UK, making it a widespread payment option.
Banks operate a direct debit guarantee. In this, if a customer disputes an amount that has gone out of their account by direct debit, they can contact their bank and ask for an immediate refund. It is then the service user's responsibility to ask the customer for the money. However, the service user is not automatically liable under the guarantee for any bank charges caused by the service user's error, for example if an incorrect direct debit transaction causes the customer to go overdrawn. However, there are conditions where claims for consequential loss are considered under the direct debit guarantee.
To set up a paperless direct debit, nothing needs to be signed by the customer, which is why the system is so strongly regulated. A customer has the right to request a paper direct debit instruction. Some types of bank account do not allow direct debits; typically current accounts do as well as some deposit accounts. Direct debits cannot be collected on credit card accounts and should not be confused with a credit card continuous authority. The rules and regulations for a continuous credit card authority are different from the direct debit guarantee.
Any direct debit instruction that has not been used to collect funds for over 13 months is automatically cancelled by the customer's bank (this is known as a "dormancy period"). This can cause problems when the mandate is used infrequently, for instance, taking a payment to settle the bill for a seldom used credit card. If the credit card company has not collected a payment using the Direct Debit mandate for over 13 months the direct debit mandate may have been cancelled as dormant without the customer's knowledge, and the direct debit claim will fail.
Direct debit payments can be set up via these methods:
- paper-based forms which require a signature
- via telephone using a formal script to collect all the required information
- via the internet using an online application form which has been approved by a bank
- using a telephone keypad to enter data to an automated menu system
- through interactive services on digital television
- face-to-face, where the payer keys their account data directly into the originator's computer system
Direct debit fraud 
The problem of direct debit fraud is extensive according to research by Liverpool Victoria Insurance  which reveals that over 97,000 Britons have fallen victim to criminals setting up fraudulent direct debits from their accounts. An average of £540 goes missing before the customer notices. Direct debit payment fraud in 2010 accounted for around 10.6% of all identity fraud cases. The extent of direct debit scamming is set to grow to 41,000 cases a year by 2013, equating to a 57% rise.
However, the problem is exacerbated by some of the banks themselves for failing to implement any controls which prevent companies or fraudsters taking monies from business and consumer accounts. The problem of cancelled and obsolete direct debits being wrongfully revived or re-implemented is estimated to cost UK consumers £385 million in 2010. For those customers who find out, it takes them on average four months to notice. Although no specific figures were collected it appears a substantial number of people lose considerable amounts of money annually because the obsolete direct debit is neither noticed nor recovered.
On 7 January 2008, Jeremy Clarkson found himself the subject of direct debit fraud after publishing his bank account and sort code details in his column in The Sun to make the point that public concern over the 2007 UK child benefit data scandal was unnecessary. He wrote, “All you'll be able to do with them is put money into my account. Not take it out. Honestly, I've never known such a palaver about nothing”. Someone then used these details to set up a £500 direct debit to the charity Diabetes UK. In his next Sunday Times column, Clarkson wrote, “I was wrong and I have been punished for my mistake.”
The Einzugsermächtigung ("direct debit authorisation") just requires the customer to authorize the payee to make the collection. This can happen in written form, orally, by e-mail or through a web interface set up by the payee. Although organisations are generally required not to instruct their banks to make unauthorised collections, this is usually not verified by the banks involved. Customers can instruct their bank to return the debit note within at least six weeks.
This method is very popular within Germany as it allows quick and easy payments, and it is suited even for one-time payments. A customer might just give the authorisation at the same time she or he orders goods or services from an organisation. Compared to payments by credit cards, which allow similar usage, bank fees for successful collections are much lower. Often retailers such as supermarkets will process Girocards as direct debit (ELV) transactions after performing a real-time risk analysis when the card is swiped. This is possible because the Girocard contains the bank account number and routing code of the giro account in the magnetic stripe. The customer agrees to the direct debit by signing the back of the receipt, which normally contains a long contractual text that also allows the retailer to contact the customer's bank and get their address in the case the debit is returned ("Rücklastschrift"). Direct debits are practically free for the retailer, allowing them to save the Girocard interchange fees (approx. 0.3%) that would be associated with PIN based transactions, but incur a higher risk as the payment can be returned for any reason for up to 45 days. Therefore, they are used usually for returning customers that have already had successful Girocard (PIN-verified) transactions at the same store or are purchasing low-risk or small-ticket items.
To prevent abuse, account holders must watch their bank statements and ask their bank to return unauthorised (or wrong) debit notes. As fraudulent direct debit instructions are easily traced, abuse is rare. However, there can be issues when the amount billed and collected is incorrect or unexpectedly large. There have also been cases of fraudulent direct debit where the defrauders tried to collect very small individual sums from large numbers of accounts, in the hope that most account holders would be slow to raise an issue about such small sums, giving the defrauders enough time to withdraw the collected money and disappear.
The Abbuchungsauftrag ("posting off") requires the customer to instruct his or her bank to honour debit notes from the organisation. Direct debits made with this method are verified by the customer's bank and therefore can not be returned. As it is less convenient, it is rarely used, usually only in business to business relationships.
In the Netherlands, like in Germany, an account holder can authorize a company to collect direct debit payments, without notifying the bank. Doing so is very common, with as much as 45% of all banking transactions conducted via direct debit.
A transaction can be ongoing, or one-time only. For both types collecting organizations must enter into a direct debit (automatische incasso) contract with their bank. For each transaction the name and account number of the account holder must be provided. The collecting organisation can then collect from any account, provided there is enough money on the account and no block is set against direct debit from the collecting organisation. Legally, the collecting organization must have a signed and dated authorization card specifying the amount (to be) debited.
Transactions can be contested depending on the type of transaction, time since the transaction and the basis of dispute. Authorized transactions of the ongoing type can directly be recalled via the bank of the account holder within the 56 days (8 weeks) since the transaction. Authorized one-time only transactions can be recalled via the bank within 5 days. Unauthorized transactions can be contested via the bank within a limited time period after the transaction.
To prevent fraudulent transactions the collecting organization is required to present to the account holder's bank, upon request, a signed authorization card (machtiging). If this card cannot be presented, all direct debit transactions may be considered to be fraudulent. Some online shops offer the possibility of paying by direct debit, but since they typically do not receive a customer's signature, their payments may officially not be honoured.
Another security measure is a "selective block" whereby the customer can instruct the bank to disallow direct debits to a specified account number. Blanket blocks are also available.
Republic of Ireland 
The direct debit system in the Republic of Ireland is operated by the Irish Payment Services Organisation (IPSO). Direct debit instructions can be given in writing or by telephone. There are protections for the holder of the account being debited in the event of a dispute.
Direct debit is a very common payment option in Japan. When signing up for a service, such as telephone, a customer is usually asked to enter their bank details on the service submission form, to set up for automatic payments, and the company they are signing up to will take care of the rest. Sometimes, but not always, the customer is offered the possibility to enter credit card details instead of bank account details, to have the money directly debited from credit card instead of bank account.
In Malaysia, the direct debit system is available via the product known as FPX – Financial Process Exchange. FPX supports online direct debit as well as batch direct debit. It opens new doors for e-commerce in Malaysia, in particular business to business (B2B) and business to commerce (B2C) payments.
FPX allow customers to make payment at e-market places such as websites and online stores as well as for corporations to collect bulk payment from their customers.
It leverages on the Internet banking services of participating banks and provides fast, secure, reliable, real-time online payment processing. FPX provides a complete end-to-end business transaction, resourceful payment records, simplified reconciliation and reduced risks as fund movements are between established financial institutions.
Supported by Bank Negara Malaysia and the local financial institutions, FPX is operated by FPX Payment Gateway Sdn Bhd, a subsidiary company of Malaysian Electronic Payment System (1997) Sdn Bhd (MEPS).
In Australia direct debit is performed through the Direct Entry system also known as BECS (Bulk Electronic Clearing System) or CS2, managed by the Australian Payments Clearing Association. An account holder can authorise a company to collect direct debit payments, without notifying the bank.
A common example of direct debit is authorising a credit card company to debit a bank account for the monthly balance.
Many smaller companies do not have direct debit facilities themselves, and a third-party payment service must be used to interface between the biller and the customer's bank. For this a small charge (typically $1–2 per transaction, incorporated into the bill amount) is made by the payment service.
Direct credit and debit instructions are only available to institutional customers. Direct credit instructions are used for payrolls and other large scale regular payments. Direct debit instructions are used by insurance companies, utilities and other large organisations which receive regular payments. Although governed by APCA rules, the actual exchanges of instructions occur through bilateral exchanges. There is no central “clearinghouse” for bulk direct entry payment instructions.
United States 
South Africa 
In South Africa direct debits, also known as debit orders, are performed through the ACB. An account holder can authorise a company to collect direct debit payments. The client signs a debit mandate form giving the requesting company permission to debit their account with a fixed or variable monthly value. This value can be recurring or once-off. This is an effective, safe and more cost effective alternative to receiving money in cash, by cheque or EFT (Electronic Funds Transfer).
There are three types of commonly used debit orders in South Africa: EFT (Electronic Funds Transfer), NAEDO (Non-authenticated Early Debit Order) and AEDO (Authenticated Early Debit Order).
In Poland, direct debit is operated by KIR S.A. (Krajowa Izba Rozliczeniowa, National Clearinghouse) and participating banks as one of the functionalities of the ELIXIR clearing system. The payer has to authorize the payee by filling, signing and submitting a standarized paper form in two copies. One copy, after filling in payee details and a customer identification number, is sent by the payee to the payer's bank, which verifies the signature. From now on, the payee may debit the payer's account. Since 24 Oct 2012 it is also possible to submit such authorization through the payer's bank, often also online.
The payer can:
- Cancel any direct debit transaction:
- within 56 calendar days - individuals,
- within 5 working days - businesses and other organizations.
- Suspend authorization so future direct debit transactions are blocked.
- Revoke authorization at any time either online or by submitting a paper form to the bank.
In case of cancelling a transaction, funds are immediately returned to the payer's account. Interest is also adjusted as if the transaction never happened.
Collecting fees through direct debit is supported mostly by big players such as telco, insurance and utility companies and banks themselves. It is commonly used to pay bills, credit card debt, loans etc.
See also 
- APCA, the Australian Payments Clearing Association
- Direct Debit Bureau South Africa
- Glossary of direct debit terms
- Direct Debit FAQs
- Direct Debit transaction codes used in the UK
- KIR S.A., the Polish National Clearinghouse
- Corporate Collect - South African Debit Order Company
- Before a company or organisation can claim direct debit payments from its customers (direct debits cannot be paid to individuals), it has to be vetted by its bank. This is to stop it defrauding customers and to ensure that the proper controls are in place to allow the them to operate within the direct debit scheme rules. If a large number of customers complain about direct debits set up by a particular service user then the service user may lose its ability to set up direct debits.
- "What’s involved in taking payments by Direct Debit?". Eazy Collect. Retrieved 29 May 2012.
- "Direct Debit - The Basics". GoCardless. Retrieved 15 November 2012.
- "The Direct Debit Guarantee". BACS. Retrieved 29 May 2012.
- "What happens when a Direct Debit is inactive?". Inactive Direct Debits. BACS.
- "BACS: Paperless Direct Debit". Retrieved 29 May 2012.
- Sharp increase in direct debit fraud Banking Times Gill Montia November 19, 2010
- Snowdonia Tourist Services hit by fraudsters by Dan Beavan, Daily Post Apr 27 2009
- UK Banks Responsible For Direct Debit Scams January 26, 2012
- Clarkson stung after bank prank, BBC News
- Official website of the IPSO
- Guide to the Irish direct debit system
- Australian Direct Entry Fact Sheet
- Alan L Tyree. "The Australian Payments System". Retrieved 2012-04-08.
- Direct Debit. "Debit Order Services in South Africa". Retrieved 2012-06-07.
- "Polish National Clearinghouse's ELIXIR clearing system". Retrieved 2013-01-09.