Apr 19, 2012

Standing Order vs Direct Debit

Offering customers the facility to pay for your product or service by a regular automated payment method, such as Direct Debit or standing order, allows your business to effectively forecast your cash flow. The payment instructions are made on the specified date and you receive the money regularly from your customers into your account.

However, we are frequently asked the question “What’s the difference between a Direct Debit and a standing order?”. Many people do not understand the difference between the two payment methods as both seem to generally do the same thing.



What’s the difference between a Direct Debit and a standing order? 

Direct Debit – the authority a customer gives to an organisation to claim money from their bank account

Standing order – an instruction a customer gives to their bank to make regular payments of a fixed amount.

What are the benefits of Direct Debit? 

Flexibility and control are the main benefits of the Direct Debit system. You control the setup of the payment, so should your business need to make amendments, you can do so without having to obtain the customer’s signature each time. Furthermore, Direct Debits can be managed with a paperless solution, which supports variable or fixed collections and provides detailed reporting. If your organisation is still using standing orders to collect payments then you may be incurring costs that exceed the transaction fees involved with Direct Debit collections.

A prime example of the benefits of collecting payments via Direct Debit is with the VAT changes that the UK has experienced recently. With Direct Debit agreements in place, your organisation could simply amend the amount to be debited from all of your customers with a click of a button. Standing orders are not so easy. Imagine contacting customers requesting them to cancel their current standing orders and reinstate a new one with their bank. Customers are unlikely to welcome the administration involved in doing this. It may also prompt customers to review your service and possibly cease payments altogether. All in all, you could be left with a reduced customer base and incur cash flow issues.

Standing orders have attributed to the evolution of automated payments in the UK, however, their usage is in decline due to the more attractive Direct Debit option providing total control, security and improved cash flow.

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