Recurring bank payments look simple in the bank feed, which is exactly why they cause bookkeeping errors. The same amount appears every month, someone creates a rule, and nobody checks again until the supplier raises the price, an invoice goes missing or a payment is taken twice.
The difference that matters for bookkeeping
| Direct debit | Standing order | |
|---|---|---|
| Who controls the amount and date | The supplier (the payee) | You (the payer) |
| Amount | Can vary each collection | Fixed until you change it |
| Typical use | Utilities, software, insurance, HMRC payments, card terminal fees | Rent, loan repayments to individuals, fixed retainers |
| Protection if taken wrongly | Direct Debit Guarantee: refund from your bank | No guarantee; you must recover it from the payee |
| Bookkeeping risk | Amount changes unnoticed; collections without an invoice | Payment continues after the agreement ended |
For the mechanics of each, see how direct debits work and standing orders.
Record the invoice, then match the payment
The bank line is evidence of payment, not of what was bought. The clean method is the same for both payment types:
- Post the supplier invoice or bill to the purchase ledger with the correct nominal code and VAT.
- Match the bank line to that open invoice, so the supplier balance goes to zero.
Posting the bank line straight to an expense code (a “spend money” entry) is tempting for small monthly items, but it bypasses the supplier account. You lose the ability to see unpaid or overpaid balances, and you will usually miss the VAT, because the statement line carries no VAT breakdown.
Example: a variable energy direct debit
Your electricity supplier collects by direct debit on the 5th. In March it issues an invoice for £360 including £60 VAT at the standard rate, and collects £360 on 5 April.
| Date | Entry | Debit | Credit |
|---|---|---|---|
| March | Post invoice: electricity | Light and heat £300; Input VAT £60 | Trade creditors £360 |
| 5 April | Match bank collection | Trade creditors £360 | Bank £360 |
If April’s collection is £390 because the supplier adjusted for a meter reading, the difference shows on the supplier account straight away instead of being buried in an expense code.
Bank rules: helpful for standing orders, risky for direct debits
Bank rules that auto-post recurring lines save time. Use them where the amount and meaning never change, such as a fixed rent standing order with a landlord who issues no invoices. For direct debits, set the rule to suggest a match to an open bill rather than to create a new transaction. A collection that does not match anything then lands in your exception list. The bank feeds in accounting software explains how to check rules periodically.
VAT: the statement is not enough
A bank statement is not a VAT invoice. To reclaim input VAT on a direct debit you need the supplier’s VAT invoice or a valid annual or periodic VAT invoice covering the payments (common for utilities, leases and insurance). Insurance premiums are exempt from VAT but carry Insurance Premium Tax, which is not reclaimable, so post them gross. Check what each recurring supplier actually issues before you set up a rule that adds VAT automatically.
When a collection goes wrong
- Collected twice or wrong amount: ask your bank for a refund under the Direct Debit Guarantee. Record the refund against the supplier account so the overpayment and the refund cancel out.
- Collection failed: your bank feed shows the debit and then a reversal. Leave the invoice open, contact the supplier and expect a re-presentation; see returned payments and failed collections.
- Standing order to a landlord continuing after you moved out: there is no guarantee. Cancel it, record the overpayment as a debtor against the landlord and chase repayment.
Quarterly check
Once a quarter, export all recurring payments from the bank and compare them with the list of contracts you expect to pay. Look for suppliers you no longer use, price increases you did not agree, and mandates on accounts you plan to close; closing dormant accounts covers moving mandates before an account is closed.