Direct debits are one way to manage your regular bill and debt payments, but timing is everything. We share our tips for making sure direct debits work for you, rather than against you. We also explore Centrepay – a free bill-paying service for Centrelink customers.
Direct debits explained
What are they?
A direct debit is when you authorise another party to electronically deduct a specified amount of money from your transaction account or credit card account, on a specified date.
Direct debits can be one-off payments, or they can be set up regularly. In the case of regular payments, the dollar amount can be a set amount, or it can change in line with the cost of the bill being paid.
For example, you could authorise a gas company to automatically debit the full total of your bill from your account whenever a bill is payable. Or, you could authorise a bank to automatically debit set loan repayments from your account (these are often referred to as 'periodic payments').
In this article:
Direct debits explained;
Direct debits explained;
Some pros and cons;
Golden rules for making sure your direct debits run smoothly;
Factors to consider if you have to cancel a direct debit;
What to do, and who to contact, when things go wrong;
Centrepay – a free bill-paying service for Centrelink customers.
Setting up a direct debit
Setting up a direct debit is relatively straightforward.
The biller will provide a direct debit request form for you to fill in.
Read the terms and conditions as shown on the form, and ask the biller if you have any questions.
If you're comfortable that you understand all that's required of you (and the biller), complete and sign the form. In signing the form, you authorise that biller to deduct the agreed amount from your account at the agreed time.
Using the completed and signed form as their authority, the biller will then deduct future bills or payments, as agreed by you, from your nominated bank account, at the times agreed by you.
Some pros and cons
Direct debits can be one way to pay your bills and make automatic loan repayments. Providing you have the money in your account, your bills and repayments are always paid in full and on time. And, because they are an electronic form of payment, direct debits often attract relatively low transaction fees.
Direct debits are no different from other forms of withdrawal from your account – it's up to you to ensure there's enough money in your account to cover the payment. If there isn't, you could be hit with a dishonour fee for not making the payment, either from your bank, the biller, or both. If the payment still goes through even though the money isn't there to cover it, you could be hit with an overdrawn account fee from your bank (and you could be charged this fee for every day your account is overdrawn...which adds up fast if it takes you a few days to notice what's happened).
Not having enough money in an account to cover direct debits is one of the most common direct debit traps. Dishonour fees alone can range from around $30 to around $50 a hit – that's a painful price to pay for not doing your sums. Careful management can ensure that direct debits work for you, rather than against you. Here are some tips...
Golden rules for managing direct debits
When you sign a direct debit request, you're authorising a third party to debit your account – make sure they can debit only what you have agreed. Read the direct debit request carefully to make sure you know what it's all about.
Check the timing of the direct debit. Consider setting up direct debits so that they are withdrawn from your account in the days directly after your payday or pension/benefit day. This way, the money will be in your account when the debits are ready to be withdrawn. Note that it's a good idea to avoid setting up a direct debit for the same day as your payday, as this leaves no margin for error if your pay is late, or if there's a delay with processing your pay.
Always include direct debits in your budget so that you know exactly how much to leave in your account to cover them.
Try to leave a buffer in your account (and factor it into your regular budget as well) to cover unexpectedly large debits. For example, if your electricity bill is higher than usual, you'll need to ensure you have enough in your account to cover the larger amount.
Direct debits are your responsibility, so it's up to you to double-check that the correct amounts are withdrawn at the correct time. Always check your statements thoroughly, and if there seems to be a problem, contact the biller and/or the bank straight away to bring it to their attention.
Last but not least, keep a record of all the direct debits you have in place and which accounts they're withdrawn from. That way, if you ever need to close an account, you can see which direct debit arrangements you'll have to change before you close the account.
If you need to cancel a direct debit
A direct debit from your bank account
You can cancel a direct debit from an account either by informing the biller or your bank.
Note that it can take a few working days for a cancellation to become effective. If you try to cancel the day before a payment is due for example, it may not be processed in time. Indeed, some billers require a minimum of three working days to cancel a direct debit (some require much longer), so you'll need to check with the individual biller to find out how much notice you are required to give them.
A direct debit from your credit card
Note that if you're cancelling a direct debit that comes from your credit card, you need to contact the biller in order to do so (not your credit card issuer).
Tips for when you cancel
Always double-check that the cancellation has gone through successfully and that the debits have stopped. If you have followed the correct procedure but find that the direct debit is still occurring, contact your bank or credit card issuer immediately.
Bear in mind that cancelling a direct debit before the bill is paid still leaves you with a bill to pay. In some cases, you may need to discuss with your biller another way of paying the bill before you cancel the direct debit.
Also be aware that if your biller has specified that payments must be made by direct debit as part of your contract with that biller, you could be breaching your contract if you then cancel the direct debit. Before you sign any direct debit contract, make sure you know exactly what conditions apply.
When things go wrong
If you have got a problem with a direct debit, your first step should be to notify the biller or the bank. If your bank has adopted the Code of Banking Pracrice, they're bound by certain obligations when it comes to dealing with your problem once you notify them. For example, they must complete an investigation into an issue within 21 days of being notified by you, or advise you of the need for more time to complete the investigation but the bank has to complete the investigation within a further 24 days (total time from receipt of complaint 45 days), unless there are exceptional circumstances.
Unauthorised debits
If there's been an unauthorised direct debit from your bank account, notify your bank immediately. If the bank confirms that the debit was not authorised, they will reimburse your account with the debited amount, and may reimburse fees or charges you may have incurred as a result of the unauthorised debit. This does not apply to any transaction carried out by you or by anyone performing a transaction with your knowledge and consent.
If the unauthorised debit was from your credit card, your card issuer can reimburse the amount to your card while they're investigating your complaint (this is called a 'chargeback'). If, in investigating your complaint, it's determined that the debit was indeed unauthorised, the chargeback will stay in place. If, however, it is found that the debit was authorised, the amount will be debited from your account. Different time frames may apply for chargebacks depending on the card issuer.
If you need to take a complaint further
If you've had a problem with a direct debit and you've already made a complaint to your bank or credit card issuer, but the complaint has not been resolved to your satisfaction, you can take the complaint further by contacting one of the following organisations:
Credit Union Dispute Resolution Centre Telephone 1800 624 241 (toll free)
Financial Co-operative Dispute Resolution
Centrepay – a bill-paying service for Centrelink customers
Centrepay is a free bill-paying service offered to customers receiving payments from Centrelink. You can use Centrepay to pay bills (such as rent, gas, water and electricity) through a series of regular deductions from your Centrelink payment.
Instead of having to pay large bills in one go Centrepay gives you the option of having smaller, more manageable amounts deducted from your fortnightly Centrelink payments. This can help you pay off bills gradually, and is a way of ensuring that money is always set aside to cover your bills.
It's up to you and it's flexible
Centrepay is voluntary. If you do use the service, you decide which bills you want to pay using Centrepay. You determine the amount of your regular Centrepay payments, from a minimum of $10 per fortnight. Note that some billers might require a higher minimum fortnightly payment – you can check this with the biller.
You can start, stop, suspend, or change the amount of your Centrepay deductions at any time.
What bills can I pay?
In order to pay a bill using Centrepay, the organisation providing the product or service must be registered with Centrelink to accept Centrepay payments. A wide range of billers are currently registered, allowing Centrelink customers to pay a range of bills, including:
Rent
Telephone
Electricity, gas, water
Medical services and equipment
Food bills
Ambulance costs
Council rates
Child care fees
Home care services
ATSIC Home Loan repayments
Rental of household goods
No-interest loans
Court fines or infringements
School fees and expenses
Contact Centrelink or your service provider to find out if they are registered to accept Centrepay payments.
Setting up a Centrepay deduction
To set up a Centrepay deduction, you'll need to complete a Centrepay Deductions form, which you can obtain from Centrelink, or from the biller you wish to pay. In many cases, you can also call Centrelink and set up your deduction over the phone.
Keeping track of your Centrepay deductions
Once your form is processed, Centrelink will send you a letter to confirm the details of your deductions. The billers who are registered to accept Centrepay payments also receive regular reports listing all the Centrepay payments you've made to them. These organisations then detail your Centrepay payments on the bills they send to you, or an a separate account statement.
At any time, you can ask Centrelink for an account statement to obtain a summary of your past deductions and your current deductions.
Working out how much to pay
Before signing up to use Centrepay, you'll need to determine what the product or service costs you, and then work out what level of fortnightly repayment will help you cover this bill (whether you're using Centrepay to pay off the entire bill, or to simply help you pay part of the bill). In some cases, your service provider can help you determine how much your regular payment should be.
If you'd like some help, a financial counsellor can look at your various payment obligations, together with your income, to help you work out the best way to handle your repayments. You can contact your local council to find out about free financial counselling services in your local area.
If your Centrelink benefits change or stop
If your Centrelink payment is reduced at any point, it might not cover your Centrepay deductions. You are responsible for ensuring that your Centerpay deductions are covered by your Centrelink payments. If they're not, you'll need to find an alternative method of paying the bills. You should also contact Centrelink and arrange to have your future Centrepay payments reduced accordingly.
If you stop receiving Centrelink benefits at any stage (even if it's for a short period), note that your Centrepay deductions will also stop, and you'll need to make alternative arrangements with the affected billers.
If you don't pay your bill in full
Note that if your regular deductions are not enough to cover your bill, or if you stop your deductions before the bill is paid in full, you'll need to make alternative arrangements with the biller to ensure that your bill is paid.
If you no longer need to pay
Notify Centrelink immediately if you need to cancel your Centrepay deductions
For more information
Visit the Australian Securities and Investments Commission web site at www.fido.asic.gov.au to find out more about direct debits and tips for managing them;
Visit the Australian Bankers' Association web site at www.bankers.asn.au to download a copy of the Banking Code of Practice;
Visit the Centrelink website at www.centrelink.gov.au, or call Centrelink directly on your usual Centrelink payment number, to find out more about Centrepay.
