What is a direct debit and how does it work?

Direct debit is one of the basics of cashless payment. We'll tell you what exactly is a direct debit and how it works.

What is a direct debit?

• With a direct debit, companies or authorities can collect money from their customers or creditors independently. This will relieve you of the transfer work and the money will be debited from your account.
• In order for a company or an authority to be able to withdraw money from your account independently, you must issue a so-called direct debit mandate (also called direct debit authorization). This is a small contract, through which you authorize the company to carry out the direct debit.
• Unlike a standing order, the amount for the direct debit is not fixed. The direct debit authorizes the company to debit the amount due. If a direct debit has been incorrectly debited or fraudsters simply have a direct debit for your account, you can withdraw the direct debit. Object to direct debit
• Example: If you use a prepaid SIM for your smartphone, you need to top up your credit regularly. Most mobile operators now also do this online. If you leave your account details online, you can initiate a top-up on the provider's website. You do not have to transfer the amount yourself, you can simply have it collected by direct debit. Your account will be loaded directly, the money will only be debited from your account in the next few days (see picture).

Advantages and disadvantages of direct debit

• Direct debits have both advantages and disadvantages: If the monthly amount is due for health insurance or you have to pay your income tax, this works easily by direct debit.
• If you have previously signed a direct debit authorization for the health insurance or the tax office, the amount will be debited independently. However, this can also lead to problems.
• If the tax office has miscalculated or if too much was withdrawn from your account for other reasons, the money is gone for the time being. Now you have to take care of getting your overpaid money back. Without the direct debit mandate, you could contest the incorrect amount before the debit.

On the next page you can read what to look out for when paying by direct debit.