Millions of us choose to pay our bills by direct debit and standing order, but what happens if there's a problem or mistake?

How do you pay your bills? By cheque, telephone or internet banking or direct debit? Already millions of us opt for the convenience of direct debit or standing order; not only is it less of a faff, many companies give you a discount as well. But do you know exactly what the difference is between the different payment methods or what your rights are if there’s a problem? The Financial Ombudsman says that many consumers don’t know the difference between the different payment methods and – worse than that – neither do some bank staff.

Payment options
According to the Financial Ombudsman Service, while many of us use automated payments without a problem, when things do go wrong, you can’t always count on the bank staff knowing the rules. So, here’s a guide to how they work (so you can tell the bank staff!):

• Direct debit: You give the company you’re paying permission to take different amounts out of your account (depending on how much you owe) on an ongoing basis. Money is taken from your account on a pre-arranged date (but the date can vary by a day or two from month to month).

SAVVY TIP: Companies, such as energy suppliers and mobile phone providers, have worked quite hard to get us to pay our bills by direct debit. Not only does it cost them less to process direct debits than cheque or cash payments, but we’re far less likely to scrutinise our bills when we don’t have to pay money at the time.

• There’s a ‘direct debit guarantee’ in place, which means that your bank should refund money that’s been wrongly debited from your account.

SAVVY TIP: The direct debit guarantee doesn’t just apply if the bank makes a mistake and debits the wrong amount, it also applies if the company you’re paying gets it wrong. It’s something that bank staff aren’t always aware of.

• Standing order: This gives you more control over your payments than a direct debit as you say in advance how much you’d like to pay and you’re the only one who can make changes.

SAVVY TIP: With a standing order, you know exactly how much comes out of your account and when. The disadvantage is that some companies that give you a discount for paying your bill by direct debit won’t pass on the saving if you pay by standing order, although some will. If the discount is important to you, check before you sign up.

• Continuous payment authority: You can’t set up a continuous payment authority through your bank account, it has to be done via your credit or debit card,. When you set up a CPA you agree to make ongoing payments until the company you're paying says otherwise. It can be convenient, but beware that you have far fewer rights. There's information about this on the independent Moneymadeclear website. The contract exists between your card company and the supplier you’re paying, and only the supplier can cancel a CPA.

SAVVY TIP: The supplier has control over how much you pay and when, but continuous payments aren’t backed by a guarantee (as direct debits are). Be aware that when you tick a box or agree over the phone to pay by credit or debit card, you may be agreeing to ongoing payments rather than a one-off.

Problems and complaints
BACS, which operates the direct debit system, says that millions of payments are made correctly every year, but problems do still arise. And when they do, you may find your bank tells you it’s the supplier’s problem and vice versa.

SAVVY TIP: Stand your ground and force the bank to sort out the problem. It’s their duty to do this under the direct debit guarantee. If that doesn’t work, complain to the Financial Ombudsman Service.

If it’s a problem with a continuous payment authority, it may be harder to get your complaint resolved as it may come down to your word against the company’s.

SAVVY TIP: If you’re asked whether you want to pay for a service on your card, ask if that means you’re setting up a continuous payment authority or if it's a one-off and try and get an email confirmation of telephone conversations.

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