Direct debits make life easier by automating payments for things like electricity, phone bills, subscriptions, and loan repayments. But when they fail, the costs can quickly add up. A single dishonour fee from your bank or service provider might not seem much at first glance, but when combined with late fees and potential credit score impacts, it can create a cycle of financial stress.
This guide explains how direct debits work, why dishonours happen, what fees you could face, and how to prevent them from occurring in the first place.
What Is a Direct Debit and Why Dishonours Happen
A direct debit is an agreement that lets a company or service provider automatically withdraw funds from your bank account to pay bills or instalments. It’s a convenient way to ensure payments are made on time without manual transfers or reminders.
A dishonour occurs when the transaction fails because there isn’t enough money in the account to cover the debit amount. It can also happen for reasons such as:
- The debit date falls on a weekend or public holiday, and the system retries on the next business day.
- The account number or BSB was entered incorrectly.
- The account has been closed or frozen.
- The transaction was blocked by the bank due to suspicious activity or insufficient authority.
When a direct debit fails, both the bank and the merchant may charge fees, which can stack up if multiple payments bounce in a short time.
The Real Cost of a Dishonoured Payment
Dishonour fees vary by bank, but most major institutions charge between $5 and $15 per failed transaction. Some, like ANZ, may charge up to $6 for a rejected payment, while Commonwealth Bank’s dishonour fee can reach $15 depending on the type of account.
But the problem doesn’t end there. Service providers, such as utility companies, gyms, or lenders, can also impose their own late payment or penalty fees, often between $10 and $35. For example, if your electricity bill bounces, you might face both a $15 dishonour fee from your bank and a $25 late fee from the energy provider.
This means a single missed debit could cost $40 or more, not counting additional charges for reattempted payments or potential account overdrafts. If your direct debit is tied to a loan repayment, a failed payment could also appear on your credit report, affecting your credit score.
Common Situations That Trigger Dishonours
Dishonours often happen at the most inconvenient times, particularly for people managing week-to-week budgets. Here are some of the most common scenarios:
- Timing mismatch: Your pay arrives on Friday, but the direct debit is scheduled for Thursday.
- Unexpected expenses: A medical bill or an emergency purchase reduces your balance before a scheduled debit.
- Multiple payments on the same day: When several automatic debits hit your account simultaneously, the balance may not stretch far enough.
- Overdraft confusion: Some accounts don’t allow overdrafts, so even a shortfall of a few dollars can result in a dishonour.
Identifying these patterns can help you spot where things go wrong and take preventive steps.
How to Prevent Direct Debit Dishonours
1. Track Your Payment Dates and Adjust Schedules
Start by reviewing your direct debit calendar. Most banks allow you to view upcoming debits through their mobile apps or online portals. Try to align debit dates with your income cycle, ideally one or two days after you get paid.
If a bill is consistently deducted too early, contact the provider and request a new debit date. Many companies, such as energy and internet providers, allow flexible billing cycles. Adjusting these can make a big difference in avoiding shortfalls.
2. Maintain a Buffer in Your Account
Keeping a small financial buffer, even as little as $50 to $100, can safeguard you against dishonours caused by minor balance miscalculations. You can set up an automatic transfer into your transaction account each payday to keep this buffer topped up.
For people using multiple bank accounts, ensure that the one linked to your direct debits is always prioritised when you receive income.
3. Turn On Balance Alerts and Notifications
Most major banks offer free alerts through SMS or app notifications to warn you when your balance drops below a set amount. This can help you transfer funds in time before a scheduled debit.
For instance, NAB and CommBank both allow users to set up low balance alerts and direct debit reminders via their apps. These tools can be a practical safety net for those managing tight budgets. (finder.com.au)
4. Review and Cancel Unnecessary Debits
Many people have forgotten subscriptions or services quietly withdrawing funds every month. Review your bank statements regularly and cancel any unused memberships or old services. Even small monthly charges can trigger dishonours when your balance is low.
5. Communicate With Your Provider Early
If you know a payment will bounce, contact your service provider before it happens. Most companies prefer to reschedule or delay the payment rather than charge a penalty. Some may even waive a fee if it’s your first time or you’ve been a reliable customer.
If you know a large bill is about to be debited but you’re short on funds, taking out one of the available small loans in Australia to cover the amount can often be cheaper than paying multiple dishonour fees. However, only borrow if you can comfortably meet the repayment terms and the loan won’t worsen your financial position.
6. Set Up a Separate Account for Bills
Creating a dedicated account for direct debits can help you budget better. Transfer the total amount of your monthly bills into that account each payday, ensuring the funds are always there when payments are due. This reduces the risk of accidentally spending money meant for essential payments.
What to Do If a Dishonour Happens
Even with planning, mistakes can still occur. If a payment bounces, act quickly to minimise the damage:
- Deposit funds immediately. The provider may retry the payment automatically within one to three business days.
- Contact your bank to confirm whether a fee has been charged and if it can be reversed. Some banks may refund it as a goodwill gesture if it’s your first dishonour.
- Communicate with your biller to let them know you’re rectifying the issue. They may waive the late fee if you pay promptly.
- Check your credit report if the dishonour involved a loan repayment or credit account. It’s better to spot potential impacts early.
Final Thoughts
Dishonour fees might seem like a small nuisance, but for people living pay-to-pay, they can make budgeting even harder. By monitoring your payment schedule, maintaining a small buffer, and communicating with providers, you can keep your finances running smoothly and avoid unnecessary charges.
Remember that a single proactive step, like rescheduling a debit or setting up balance alerts, can save you from a cascade of penalties. And if you’re ever in a tight spot, consider short-term financial options carefully rather than letting multiple fees drain your account balance.