Direct Debits and recurring card payments (also known as Continuous Payment Authorities) are both options for organisations collecting regular payments. We are often asked about the differences between these two payment methods, so please see our overview below.


Direct Debits

A Direct Debit is an instruction from a payer (who could be a consumer or business) to their bank. It authorises a named organisation to collect varying amounts directly from their account. It is a secure electronic payment method set-up using the sortcode and account number. The collecting organisation provides advance notice of the amount and collection date, then ‘pulls’ payment from the payers account. The payer is protected through the Direct Debit Guarantee if any error is made.

Recurring Card Payments

A recurring card payment (also known as a Continuous Payment Authority) is when a customer gives authority to an organisation to collect money from their card. It is set-up using either debit or credit card details. The collecting organisation can take the money they believe is owed on a regular basis without having to specify when payment will be taken.

Both Direct Debits and recurring card payments are used to collect regular payments such as subscriptions, memberships and payments for services and goods. Let’s look at how they differ.

Direct Debit vs Recurring Card Payments

Taking authority for payments

To authorise a Direct Debit, the owner of the bank account that the money is being collected from, completes a Direct Debit Instruction (DDI). This may be via a paper form or through a paperless approach such as over the internet or telephone. The DDI is an agreement between the payer and their bank. It authorises the bank to allow the collecting organisation to take funds from the account when requested.

With a recurring card payment, the card holder provides their credit or debit card details to the organisation wanting to collect funds. In doing so, the card holder is granting permission for the funds to be taken from their chosen card. If a card expires or is lost or stolen, the authority will need to be set up with new card details.

Timeline to process

Direct Debits work on the Bacs 3-day cycle – meaning it takes 3 working days to collect funds – as follows:

  • Day 1. Input Day. The Service user or their Bureau transmits data electronically to Bacs.
  • Day 2. Processing Day. Accepted data is processed by Bacs.
  • Day 3. Entry Day. Direct Debits are collected and credited to the Service Users Account.

When collecting via Direct Debit therefore an organisation needs to plan when files will be submitted to Bacs. With regular payments this would typically be on the same day or date in a given collection cycle. This could be for example, 1st of the month / every Monday / every quarter etc – allowing the organisation to plan ahead. It can be on varying dates however if required.

Recurring card payments are quicker to process and can be collected immediately / on the next working day. If used for regular collections, the organisation will still need to plan when transactions are processed.

Visibility of payments

Direct Debits are typically easy to identify for payers. The Instruction is usually listed separately on mobile and internet banking and collections are identified as such. Continuous Payment Authorities can be harder to identify with some banks. They can present on a bank statement like any other card payment (so payers aren’t aware they are recurring payments).

In addition, whilst a Direct Debit is always collected with a clear reference that appears on the bank statement, that isn’t always the case for recurring card payments. They  can be collected without a reference or with a random reference. This makes it difficult for a payer to cancel one continuous payment authority e.g. via a bank, without affecting other payments to the same company. If a payer stops recurring card payments for Amazon prime for example, other payments to Amazon could also be stopped.


The Direct Debit Guarantee reassures payers that should they wish to cancel the Direct Debit, they can do so at any time. They only have to contact their bank or building society. In practice, many payers will cancel via their mobile banking app or via internet banking. Once the payer has provided notification that they wish to cancel, no further collections should be allowed by the bank. If any payments were to be taken in error, the payer would be entitled to a full and immediate refund by their bank. Although the Guarantee requests that they notify the collecting organisation, they can choose not to. Bacs will advise of cancellations via the Advice of Direct Debit Cancellations and Amendments (or ADDACS) report.

With Continuous Payment Authorities, the card holder normally has to contact the collecting organisation to cancel. This is because the authority is held by the collecting organisation (unlike Direct Debits which are an agreement between the payer and their bank). There is not an automatic right to cancel – e.g. if a contract still exists. Contacting the collecting organisation can present challenges to the payer. It’s not always easy to find the correct details and get through to them. If the organisation takes any further payments, the payer can raise a dispute with their bank, card issuer or ultimately with the Financial Ombudsman Service. This process can take some time to resolve however and for many payers, concern about the difficulties cancelling recurring card payments can put them off.

Feedback on failures

With Direct Debits, a collecting organisation will receive feedback on failed payments in the form of Bacs reports. Called the ARUDD report (Advice of Returned Unpaid Direct Debits), it provides details about items which have failed and gives brief details about why. This feedback allows the collecting organisations to decide upon the most appropriate next course of action. Collections that have failed due to “0: Refer to Payer”, can be represented for example. Those that have failed for more permanent reasons such as “2 – Payer Deceased”, can be treated appropriately.  This feedback is not available with other payment methods where a greater amount of admin time is often required to discover why items have failed.


Direct Debits are very flexible. They are an authority to collect varying amounts from an account and so they allow the collecting organisation to adjust the collection amount, as required. This is true of recurring card payments as well. With Direct Debits however, the organisation must give Advance Notice of the amount and date of collection (not the case with recurring card payments).

Providing Advance Notice is beneficial for the payer as it means that the collection will not be a surprise and they can ensure that funds are available. Providing Advance Notice is also beneficial for the collecting organisation for the same reasons. It can ensure payers are less likely to raise objections after a payment has been taken. In turn this means less admin time to deal with unhappy customers.

Payer protection

With Direct Debits, payers have the protection offered by the Direct Debit Guarantee – the most powerful protection offered by any payment method.  With this in-built protection, if an error is made, the payer is entitled to a full and immediate refund. In turn this protection ensures a high level of trust in Direct Debits which are typically well perceived by payers. The protection with recurring card payments however is reliant on the collecting organisation. 

Refund requests

With Direct Debits the payer can be reassured that if an error is made, they will receive a full and immediate refund under the Direct Debit Guarantee. Once refunded the bank raises an Indemnity Claim against the Service User to recoup the money. This is a useful mechanism as it ensures the payer has a speedy return of funds, provides a clear audit trail and is easy to manage. If the payer receives a refund they are not entitled to, they must repay it, which is a reassurance for the collecting organisation.

With a recurring card payment, the refund would typically be issued by the collecting organisation. Any refund is subject to the approval of the organisation. This can take time – certainly longer than the immediate refund provided by the bank under the Guarantee.


The actual costs for processing both Direct Debits and recurring card payments will vary from organisation to organisation. It will be dependent upon the negotiations the organisation has made with the bank and/or card provider. Typically, however, Direct Debits are the least expensive way to collect an organisations income. Often transactions are charged at pence per transaction rather than as a % of the transaction value as is typical with cards. If a large transaction value is being collected, it can make it costly for the organisation to take this via credit card.

Retention rates

With Direct Debit, retention rates of payers tend to be higher than with other payment methods. This is because the organisation is in control and initiates the collection, rather than relying on the payer. It allows automatic renewals and representation to take place and Direct Debits can continue until one party makes an active decision to cancel them. They are set-up using sortcode and account number. They are therefore less likely to fail than recurring card payments which are set-up using card details which can expire or be cancelled if lost or stolen. As a result, they are not as likely to be automatically cancelled within the organisations’ Customer Management System following a failed collection.

The best payment method?

Both Direct Debits and recurring card payments have their own benefits. The most appropriate approach will depend on a number of factors and prevailing business model. If quick processing times are paramount, then recurring card payments offer an advantage. If a low-cost option with good feedback and high retention rates are required, then Direct Debits might suit your needs better.

You can read more about different payment methods on our blogs – for example, how Direct Debits compare to Standing Orders. If you still have questions however, please contact – we are here to help!

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