What is Direct Payment? - Methods & Forms

Instructor: Brianna Whiting
In this lesson, we will learn about direct payment. We will define direct payment and learn why someone may use this type of payment. The lesson will conclude with a summary and a quiz.

A First Glance At Direct Payment

Do you remember the good old days when a bill would come in the mail? You opened up the envelope and scanned through it until you found the balance you owed. You then fumbled around to find a checkbook and a pen. You skimmed through the checkbook until you came to a blank check. You began writing out the amount of the bill when suddenly your pen stopped working. After a few minutes of digging through a junk drawer in your home, you found a new pen. You finished writing out the check and then stuffed it into an envelope. Next, you had to try to find a stamp. Finally, you take the envelope to the mailbox for the mailman to send the bill on its way. While this was the dominant way to pay bills only a few short years ago, technology has come a long way. This has changed the way we do so many daily tasks, including paying bills. In this lesson, we will look at one of the most popular ways to pay bills known as direct payment.

Definition

So what is meant by the term, direct payment? Well, direct payment is a way for consumers to pay their bills automatically and electronically. In other words, it is a way to transfer money from a consumer's bank account to the company they wish to pay. Direct payment is sometimes referred to as electronic funds transfer (EFT), electronic funds withdrawal, direct debit, or direct withdrawal.

Advantages of Direct Payment

    • Easy setup
    • Safe and secure
    • No more missed or late payments
    • No more lost or stolen paper checks
    • Automatic each month

How Does It Work?

You may be asking yourself, how do you set up a direct payment? How is the transfer of money conducted? For starters, you must decide which companies and which bills you want to pay using direct payment. Most companies allow you to set up direct payment through your online account with them or you may call the company for help with setting up a direct payment. Using your online account with a company, you provide the necessary information about your bank checking account. For example, you need to provide a checking account number and a routing number so that a company knows from which account they should withdraw the funds. Once the account information has been shared, the company has the ability to withdraw a payment from your account every month.

Tired of trying to remember when a credit card payment is due? You can set up direct payment and the credit card company will automatically deduct your payment on the same day each month. Some companies will allow you to select a specific day to pay your bill each month. However, many companies have system requirements that dictate when a payment will be deducted each month. As you set up a direct payment with each company, they will let you know when the payment will be deducted each month.

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