What is a direct debit?
- By Book Keeping Pros
- Sources checked 16 Oct 2026
Definition
A direct debit is a payment taken automatically from a bank account under an authority the account holder has given. A business can collect payments from its customers this way, and its own suppliers can collect from the business the same way. Each debit appears on the bank statement and is matched in the bank reconciliation.
When a business collects by direct debit, it draws each amount from the customer's account on the dates the arrangement allows, so payment doesn't depend on the customer remembering to pay. Each collection is matched to the invoice or account it pays, like any other money received. If a collection comes back unpaid, for example because the customer's account was short of funds, the payment recorded against the invoice is reversed so the amount shows as owing again. A provider that collects for you may pay several customers' debits into your account as one deposit, and its report shows how to split that deposit across invoices.
On the paying side, money leaves the business's account without anyone pressing pay, so the books can easily fall behind. Each debit still needs the supplier's bill or statement entered, so the cost is recorded and the bank line has something to match. Keeping a list of the direct debit authorities the business has given, with their usual amounts and dates, lets a cash flow forecast include them and makes an unexpected debit easier to spot.
In Australia
business.gov.au describes a direct debit as a payment taken automatically from a customer's bank account, set up with the customer's BSB and account number, which lets a business collect money straight from the customer's bank. It says the customer first completes a direct debit form giving the business authority to take payments, and that the arrangement can be set up through the business's own bank or through a direct debit provider.
Worked example
| Statement line | In or out | Amount (AUD) | Matched to |
|---|---|---|---|
| Direct debit collected from Customer A | In | 450.00 | Invoice INV-210, now paid |
| Direct debit collected from Customer B | In | 450.00 | Invoice INV-211, now paid |
| Customer B's direct debit returned unpaid | Out | 450.00 | Reverses the payment, so INV-211 is owing again |
| Direct debit by the insurer | Out | 186.40 | The insurer's bill for the month |
| Direct debit by the software supplier | Out | 79.00 | The supplier's monthly bill |
Illustrative example only: these rows show the method and are not sourced data.
Common mistakes
- Letting bills paid by direct debit come out of the account without entering the bills, so the books never show what the payments were for.
- Leaving a returned direct debit matched to its invoice, so the customer looks paid when the money never arrived.
- Leaving direct debits the business has authorised out of the cash flow forecast.
- Taking payments from a customer's account without their completed direct debit form on file.
Related terms
Related service
Accounts payable and receivable
Bills and invoices tracked, with you approving every payment.
Sources
- Choose payment methods
business.gov.au, Australian Government. Current at 16 October 2026, released 18 December 2025. Checked 16 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.