Direct Debit vs Direct Credit Explained

What is Direct Credit?

A direct credit is a payment initiated by the payer and pushed into the recipient's bank account. The payer instructs their bank (or payment processor) to deposit funds into one or more accounts using the recipient's BSB number and account number.

Common examples of direct credit payments include:

• Salary and wages — employers pay staff directly into their nominated bank accounts
• Government benefits — Centrelink, tax refunds, and other government payments
• Supplier payments — businesses paying invoices to vendors
• Dividends and interest — companies distributing earnings to shareholders

Because the payer controls when and how much is sent, the recipient does not need to take any action beyond providing their BSB and account number. Direct credits are considered low-risk for the recipient, as no authority over their account is granted to a third party.

What is Direct Debit?

A direct debit is a payment initiated by the receiver, who pulls funds from the payer's bank account. Before any money can be withdrawn, the payer must sign a Direct Debit Request (DDR) authorising the biller to deduct specified amounts on agreed dates.

Common examples of direct debit payments include:

• Utility bills — electricity, gas, water, and internet providers
• Loan and mortgage repayments — banks and lenders collecting scheduled payments
• Insurance premiums — regular deductions for cover
• Subscription services — gym memberships, streaming platforms, and software licences
• Strata levies — body corporate fees for apartment owners

Setting up a direct debit requires the payer to provide their BSB number, account number, and account name, along with a signed DDR authority form. The biller then submits debit instructions through the banking system on the agreed schedule.

Key Differences at a Glance

How Direct Credit Works in Practice

Consider a typical payroll cycle for an Australian business. The process follows these steps:

1. The employer's payroll team prepares a batch file containing each employee's BSB number, account number, name, and payment amount.
2. This batch file is uploaded to the employer's bank or a third-party payment processor in the BECS Direct Entry format.
3. The file is submitted before the bank's cut-off time (usually early afternoon on a business day).
4. The bank processes the batch during the next BECS settlement cycle. Settlements typically occur twice per business day.
5. Funds are credited to each employee's account, usually by the next business day.

For large organisations, a single batch file may contain thousands of individual credit instructions. The BECS system is designed to handle this volume efficiently. Government agencies use the same mechanism to distribute payments such as pensions, family tax benefits, and disaster relief funds.

Employers do not need to bank with the same institution as their employees. The BSB number in each payment instruction ensures the funds are routed to the correct bank and branch, regardless of who the employer banks with. If you are unfamiliar with how BSB numbers function, our guide on what a BSB number is provides a thorough explanation.

How Direct Debit Works in Practice

When you authorise a biller to debit your account, the process on each billing cycle works as follows:

1. The biller calculates the amount owing — for example, your monthly electricity usage.
2. On or around the due date, the biller's bank submits a debit instruction to the BECS system, specifying your BSB, account number, and the amount.
3. The instruction is processed during the next settlement cycle.
4. The funds are withdrawn from your account and credited to the biller's account, typically within one to two business days.
5. The transaction appears on your bank statement with the biller's name and a reference number.

Unlike a direct credit, you do not need to take any action each billing cycle. The biller handles the timing and amount according to your agreement. This convenience is the primary appeal of direct debit — bills are paid automatically without the risk of missed due dates or late fees.

However, it is important to ensure sufficient funds are in your account on the debit date. If the balance is insufficient, the transaction may be dishonoured, potentially attracting fees from both your bank and the biller.

Your Rights with Direct Debit

Australian consumers have strong protections when it comes to direct debit arrangements, governed primarily by the ePayments Code administered by the Australian Securities and Investments Commission (ASIC).

Your key rights include:

• Cancel at any time. You can cancel a direct debit arrangement by contacting either the biller or your bank. Your bank is obligated to act on your cancellation request, even if the biller has not yet been notified. Note that cancelling the payment authority does not cancel any underlying contract you have with the biller — you may still owe the money.
• Dispute unauthorised debits. If a debit appears on your account that you did not authorise, or that exceeds the agreed amount, you have the right to dispute it with your bank. The bank must investigate and, if the debit was indeed unauthorised, return the funds.
• Request refunds for incorrect amounts. If the biller debits more than the agreed amount, you can request a reversal through your bank.
• Receive notification of changes. Billers are generally required to give you advance notice if the debit amount or schedule will change.

If you are concerned about a direct debit arrangement, the first step is always to contact your bank. They can place a stop on the authority, blocking future debits from that biller, and assist with any disputes about past transactions.

Keeping Track of Your Authorities

Over time, it is easy to lose track of which companies have direct debit access to your account. Consider maintaining a list of all active DDR authorities. When you switch bank accounts or close a service, remember to cancel the corresponding direct debit to avoid unexpected withdrawals or dishonour fees.

BSB Numbers and Direct Entry

Both direct credit and direct debit rely on the BECS Direct Entry system, and both require accurate BSB numbers to function correctly. The BSB identifies the financial institution and branch, ensuring that each payment instruction is routed to the right destination.

An incorrect BSB can result in:

• Rejected payments if the BSB does not exist
• Misdirected funds if the BSB is valid but belongs to the wrong bank or branch
• Delayed salary or bill payments while errors are investigated and corrected

Whether you are an employer setting up payroll credits, a biller configuring direct debits, or an individual providing your details for either purpose, verifying the BSB number is a simple but essential step.

BSBFinder allows you to look up and verify any Australian BSB number in seconds, confirming the bank, branch, and address associated with the code. Before you hand over your BSB for a new direct debit, or before you enter a recipient's BSB for a direct credit, a quick search on BSBFinder can help ensure accuracy and prevent the delays that come with misdirected payments.