How to Set Up Direct Debit
Direct debit allows a biller to collect recurring or authorised payments from a customer’s bank account after the customer provides an appropriate mandate. It can be useful for bills and services where payments occur repeatedly and the amount or payment schedule may vary.
The Central Bank of Nigeria maintains regulations for the Direct Debit Scheme in Nigeria. Under the framework, the biller obtains a mandate from the payer, which can be in paper or electronic form and is subject to verification through the payer’s bank.
What Is Direct Debit?
Direct debit is a cashless payment arrangement in which the biller initiates collection from the payer’s account under an authorised mandate.
This differs from a standing order, where the account holder instructs the bank to make recurring payments according to a standing instruction.
How Direct Debit Works
The arrangement normally involves the biller, the biller’s bank, the payer, the payer’s bank and, where applicable, a payment service provider.
The payer gives the required mandate, and the biller uses the approved payment process to request collection.
How to Set Up Direct Debit
- Confirm that the service provider supports direct debit.
- Ask the biller for the direct-debit mandate.
- Provide the requested bank-account information.
- Complete the mandate accurately.
- Authorise the mandate using the approved method.
- Allow the payer’s bank to complete the required verification.
- Confirm when the mandate becomes active.
- Monitor the account after activation.
What Is a Direct Debit Mandate?
The mandate is the authority provided by the payer for the biller to collect payments. It is an important part of the process because it establishes the basis on which collections can be made.
Customers should read the mandate carefully before approving it.
What Should You Check?
Check the biller’s identity, payment purpose, account information, collection conditions and cancellation process. If the payment amount can vary, understand how that variation works.
Direct Debit vs Standing Order
| Feature | Direct Debit | Standing Order |
|---|---|---|
| Who initiates collection? | Biller | Account holder’s bank instruction |
| Mandate | Required | Customer creates standing instruction |
| Amount | Can vary according to arrangement | Usually specified by customer |
| Typical use | Recurring bills and collections | Regular transfers |
How to Cancel Direct Debit
If you no longer want a biller to collect money under a mandate, follow the bank’s cancellation or revocation procedure. You should also contact the biller where appropriate.
Do not assume that simply cancelling a service automatically cancels every payment mandate.
Monitor Your Account
Check statements regularly after activating a direct debit. Confirm that collections correspond with the authorised service.
If you see an unfamiliar collection, contact your bank promptly and provide the transaction details.
Can Direct Debit Be Used for Variable Bills?
Yes, direct debit can be suitable for recurring bills where the amount changes, provided the mandate and payment arrangement permit it.
Customers should understand the billing rules before authorising the mandate.
Safety Tips
- Authorise mandates only for genuine service providers.
- Read the mandate before approving it.
- Keep records of the mandate.
- Monitor your bank statement.
- Cancel unused mandates.
- Report unauthorised collections promptly.
Frequently Asked Questions
Is direct debit automatic?
Once a valid mandate is established and activated, collections can be initiated according to the agreed arrangement.
Can I cancel direct debit?
Customers can use the applicable cancellation or revocation process. The exact procedure depends on the bank and scheme.
Is direct debit the same as a transfer?
No. Direct debit is a collection arrangement initiated by the biller under a mandate.
Conclusion
Setting up direct debit requires an appropriate mandate and verification process. Before authorising one, understand who will collect money, how often collections can occur and how variable amounts are handled. Monitor your account after activation and cancel mandates that are no longer needed.