Standing Order vs Direct Debit: What’s the Difference?

Standing Order vs Direct Debit

As a business owner, ensuring you have an efficient and reliable way for customers to make regular payments is essential. Two of the best methods of doing so are standing orders and direct debits, as they both offer the means to make sure you get your funds on time. But what’s the difference between a standing order and direct debit payments?

That’s exactly what we’re going to find out today in this informative yet easy-to-consume blog post. Both payment options have their pros and cons, so we’ll discuss them to help you to make a more informed decision about which suits your needs the most.

Standing orders

Standing Order vs Direct Debit
High angle shot of a couple using a laptop and credit card while sorting their finances together at home

Put simply; a standing order allows a customer to instruct their bank to make regular payments on a specific date for a set amount of money. As the customer sets up a standing order, they are in complete control over both the amount and date. For this reason, people often use standing orders as an efficient way to automatically cover outgoings such as rent, as you can easily set up monthly payments for as long as you need (e.g. duration of a tenancy agreement). For this type of regular outgoing, standing orders offer convenience and peace of mind. 

However, it’s worth noting that standing orders are for a specific amount of money, which cannot be changed. If customers need to increase or decrease their payment, they will have to create a new standing order. But this isn’t the end of the world, as creating a standing order is very simple, thanks to online banking. But even without online banking, it’s simply a case of calling or going into the bank and setting one up with the cashier. 

Most banks these days use faster payments to process standing orders, meaning that payments can be made almost immediately. Failing that, it will usually arrive within one working day.

As the customer has complete control over a standing order, only they can cancel or amend it. Therefore standing orders do introduce more in the way of admin as it’s essential to be on the ball and ensure that payments aren’t late or missed completely. For many businesses, it’s this aspect of standing orders that are most off-putting, especially considering that banks only attempt a standing order once before refusing the payment if the customer has insufficient funds in their account. This is the key difference between a standing order and direct debit that make the latter more appealing for businesses.

Also, if you have standing orders set up for a large number of customers, it may well impact your bank charges. While this is not always the case, it’s definitely something to keep in mind.

Direct debits

Standing Order vs Direct Debit
Close up of young Asian woman managing online banking with her laptop and credit card at home. Technology makes life so much easier

It’s a pretty safe bet that most people have direct debits set up for a vast array of payments. A direct debit is an action from your bank that permits a business to receive funds from your account. For money you owe, usually for products or services. Direct debits are very straightforward for customers to set up, and anyone with a basic bank account can do it. It’s usually one form that they need to fill in and sign, which can be completed online, on the phone or in person.

Setting up a direct debit doesn’t cost anything, but if a customer has insufficient funds in their account when payment is due, the bank can refuse to make the payment and charge the customer. If this does occur, there is a process that allows you to retry the payment later in the month and give you time to contact the customer. Essentially, it offers you a straightforward solution for ensuring payment rather than chasing the customer and relying on their good nature.

This aspect of direct debits makes this option more appealing when it comes to the ‘standing order vs direct debit’ debate, as customers are held accountable by a missed payment charge hanging over their heads. 

Direct debits also offer a customer guarantee, which is beneficial for your business and your customer. With this, if the wrong amount of money is debited, the bank will refund the customer and then deduct the amount from your account. Less admin. Less hassle. Direct debit reports also provide an ideal and straightforward way to track payments and ensure that everything is as it should be. If there are missed payments, you will know in real-time and find out why. Then solve any issues quickly and without delay.

Another vital difference between a standing order and direct debit is flexibility. A direct debit puts you in control, meaning that any necessary amends can be made without relying on the customer. If you have payments that vary in regards to their amount from month to month, you can set an advanced schedule, or if you have consistent fixed amounts, you can rely on automation.

Standing order vs direct debits: key differences

Standing Order vs Direct Debit

Standing order

  • Set up and completely controlled by the customer.
  • Fixed amount and cannot be amended. To change the amount, a customer must create a new standing order.
  • Payment is only attempted once with no retry process.
  • More risk of losing money if errors occur.
  • Most commonly used to cover payments such as rent, personal expenses, or regularly transferring money to savings accounts.

Direct debit

  • Set up by the business, and the bank grants permission to extract owed funds.
  • The amount isn’t fixed and will accommodate increases and decreases automatically.
  • Direct debits have a retry process to ensure customer accountability and prevent businesses from losing money.
  • Includes customer guarantee — if the wrong amount is taken or goes out on the wrong date, the bank handles the admin and deducts the money from your account.
  • Less admin and increased peace of mind.

So, which payment method is best for business?

Standing Order vs Direct Debit
Asian woman using her mobile phone making contactless payment in supermarket.

Every business is different and therefore has varying financial requirements. However, when it comes to standing order vs direct debit for business, the latter is often the go-to solution as it offers more flexibility, control and peace of mind. And while many small businesses do successfully use standing orders, those who have a larger customer base and need to accommodate varying payment frequencies and amounts — direct debits tend to be the preferred choice.

We hope this blog post has helped to improve your knowledge of both standing orders and direct debits. But if you have any questions about implementing customer payment solutions or want to find out how our services can benefit you, don’t hesitate to get in touch for a chat with our helpful team.

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