UAE: As a landlord, school, insurance company, leasing company, or gym, bounced cheques or failed direct debits can be a major blow to cash flow. There is a misconception that individuals and companies need the “bounced cheque” to go after the payer/debtor. Today, however, a failed direct debit carries the same legal weight as a bounced cheque.
The payment failure of a direct debit is clear evidence, not only that you as the biller are owed money, but also how much. In the eyes of the law, a cheque is a promise to pay a sum certain of money and that promise to pay must be honoured as a cheque is considered to be the same as cash. But what some people don’t realise is that this principle also applies to direct debit mandates.
A Direct Debit Mandate constitutes a legally binding contract between the Payer, the Payer’s bank, the Biller, and the Biller’s nominated Bank where the payment is to be transferred. Pursuant to the Direct Debit Mandate, the Payer is required to accept the terms and conditions when setting up the direct debit. This contract is construed and governed by the applicable laws of the UAE including Federal Law No. (18) of 1993 Commercial Transactions Law.
Now here’s the really important part … a failed direct debit transaction places you, as a biller, in a very strong position when taking legal action against a payer/debtor to recover the amount of the failed direct debit payment. It’s definitive evidence that the amount is owed and isn’t disputed. The failed direct debit is likely to prevent the payer/debtor using a counterclaim to offset the money owed. That’s because once again, the failed direct debit demonstrates the payer’s/debtor’s earlier intention to pay the full amount. This is your SMOKING GUN that shows you are owed the money!
