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When shopping online, you often have the option to pay by direct debit, but do you know what a direct debit is? We’ll explain everything you need to know.
What Is a Direct Debit? Explained Simply
With a direct debit, companies or government agencies can automatically collect money from their customers or creditors. This saves you the trouble of making a transfer—the money is simply debited from your account.
- In order for a company or government agency to be allowed to debit money from your account on its own, you must issue what’s known as a direct debit authorization (also called a direct debit mandate). This is a short contract in which you authorize the company to process the direct debit by signing it.
- At a supermarket checkout, for example, you give your consent to have your debit card charged by signing at the payment terminal or card reader.
- The direct debit system can be used throughout the SEPA area in euros. The process is linked to your IBAN and BIC.
- If you make an online purchase via direct debit, no signature is required. The one-time amount is debited from your account by the seller. If, for example, you sign the direct debit authorization from the tax office, the tax office will automatically debit the required tax amounts from your account from that point on.
- Unlike a standing order, the amount for a direct debit is not fixed. The direct debit authorizes the company to debit the amount due. If a direct debit was debited in error or if fraudsters have simply set up a direct debit for your account, you can revoke the direct debit.
- Example: If you use a prepaid SIM card for your smartphone, you’ll need to top up your balance regularly. Most mobile carriers now allow you to do this online. If you enter your account information online, you can initiate a top-up on the provider’s website. You don’t have to transfer the amount yourself; instead, you can simply have it debited via direct debit. Your account is topped up immediately, and the money is debited from your account in the next few days (see image).
Advantages and Disadvantages of Direct Debit: The Key Points
Direct debit has both advantages and disadvantages:
- Advantage: If your monthly health insurance premium is due or you need to pay your income tax, direct debit makes it convenient. If you’ve previously signed a direct debit authorization for your health insurance provider, the tax office, or another party, the amount will be automatically deducted. This means you don’t have to worry about a thing and therefore don’t run the risk of forgetting to pay the amount.
- Disadvantage: This automated deduction process can also lead to problems. There is no limit on the amounts that can be collected via direct debit. So, for example, if the tax office calculated your tax incorrectly, the money that was debited is gone for the time being. Without the direct debit authorization, you could have addressed the error before the payment was processed. However, you have the right to request a refund of the debited amount up to 8 weeks after the debit.
