The Differences between Direct Debit and Direct Credit

What’s the Difference between Direct Debit and Direct Credit?

Both Direct Debit and Direct Credit are payment schemes run and managed in the UK by Bacs. Up until recently Bacs was an independent, not-for-profit organisation. Since 2018, Bacs has been owned and operated by Pay.UK, the recognised operator and standards body for the UK’s retail interbank payment systems. Pay.UK is also responsible for Faster Payments and the Image Clearing System (cheques), as well as related services such as Request to Pay and the Current Account Switch Service.

Direct Debit and Bacs Direct credit are very similar in some ways. Both systems run on a payment cycle of three days for example. Transactions for both are submitted to Bacs via approved software, a bureau or bank interfaces and Bacs distribute these transactions to the relevant banks for actioning. With both payment methods Bacs provide Reports to advise you about issues that could affect your payments. They differ however in the direction that money flows.

Definitions of Direct Debit and Bacs Direct Credit

Direct Debit is a ‘pull’ payment method. This is where an organisation can ‘pull’ or ‘take’ amounts of money from a payers (customers) account. They can only do this if the payer has previously given authorisation to their bank to allow this to happen – i.e. by signing a Direct Debit Instruction. It is a safe and cost-effective method for organisations to collect money owed to them. The amounts collected can vary, as can the collection dates – as long as the customer has been given advance notice of the collection amounts and dates.

Bacs Direct Credit is the way that payments can be ‘pushed’ to other people that you owe money to. They are made by electronic transfer directly into a payment service provider (bank) account. Over 150,000 organisations use Bacs Direct Credit.

In summary:

• Direct Debit is a way of collecting money – (Money in)
• Bacs Direct Credit is a way of paying money – (Money out)

Where Direct Debit and Bacs Direct Credits are used

Direct Debit is a well known and trusted payment method in the UK. In 2021 alone there were 4.6 billion Direct Debit transactions. It was the third most popular payment method after Debit cards and cash.

Direct Debit is the preferred payment method of UK bill payers and of the 4.6 billion transactions in 2021, 1.7 billion were to pay utilities and household bills. It isn’t just a payment method for household bills however. In 2021, 837 million transactions were to pay insurance premiums with a further 500 million to pay subscriptions – and many of these were business to business.

Direct Credit is also an extremely well established payment method. In 2021 there were 1.9 billion Direct Credit payments. It is a payment method mainly known for making wages and salary payments but it can also be used for a wide range of other payments such as pensions, employee expenses, insurance settlements, dividends, and refunds.