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Difficulty: MediumBanking: Functions and Services to Trade

Which commercial banking payment service is described in the statement below?

Answer:An arrangement where a business owner authorizes their bank to allow a creditor to collect variable amounts of money directly from the business account at agreed intervals is known as a 【direct debit】.

Answer

Direct debit
Direct debit is the commercial banking service that enables a creditor, with prior consent from the account holder, to pull variable sums of money directly from the debtor's account.

Step-by-Step Solution

1
Analyze the operational features of the payment system described.
The payment arrangement allows a third party (the creditor) to initiate collection of varying amounts from the debtor's account after obtaining prior authorization.
Differentiating banking services relies on knowing who initiates the payment request and whether the payment amount is fixed or variable.
2
Compare direct debits with other bank transfer methods such as standing orders.
A standing order is initiated by the account holder for fixed amounts, whereas a direct debit is initiated by the creditor for variable or recurring amounts.
Business traders use direct debits for fluctuating settlement needs such as variable utility bills or inventory purchases.

Key Concept

A direct debit is an authorization given by an account holder to a commercial bank, empowering a named creditor to claim variable payments directly from the account at specified intervals.
Estimated Time:1m 0s
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Topics

Banking: Functions and Services to Trade

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