The credit transfer system enables a person to make payments through his bank, either to other customers of the same bank or those of other banks. A person without a bank account can avail himself of the system and avoid sending cash or postal or money orders through the post. The system can also be used by institutions or individuals who have to make a large number of payments regularly for varying amounts to different payees. A company can make payments of wages and salaries to its employees and amounts owing to its creditors by sending instructions to its bank with details of the intended transfers, accompanied by a single cheque for the total amounts to be transferred.

Direct debiting is a term used to describe payments which are made by a bank out of its customer’s account to a third person who instructs the bank to transfer the amount involved to his own bank. This will, of course, only be done if the customer of the paying bank gives it an appropriate mandate for the purpose. The payment is therefore initiated by the payee and because of the possibility of fraud, the banks will give direct debiting facilities only to payees of high financial standing who can be relied on to act properly. The banks require the payee to indemnify them for any loss occasioned by improper or unauthorised use of the system, and for this reason the system cannot be used by individuals.

When payment is made by credit transfer the payer initiates the transfer of funds by giving written instructions for it to his bank on a credit transfer form. There is no prescribed wording for the form but it must authorise the paying bank to make a payment to the order of the account of a specified person with the same or another bank. Where more than one payment is to be made the debtor must list the details of each payment in a separate schedule and a separate credit transfer form must be made out for each transaction. A cheque for the total amount is then drawn by the payer (debtor) payable to the paying bank to cover all the transfers or if the payer has no account he may be required to pay an equivalent amount in cash. On receipt by the paying bank the credit transfer forms are then passed through the credit clearing in London. The clearing of credit transfers is regulated by “The Bankers Clearing House Credit Clearing Rules” which provide that a clearing is to be held each working day for the exchange of Bank Giro Credits between the London Clearing Banks.