When Direct Debit was first introduced in the UK in the 1960s, it was an expensive, time-consuming...
Direct Debit vs Standing Order
There are two ways consumers and businesses can make regular, automatic payments and they are either by Direct Debit or standing order. They both perform the same function, helping people make recurring payments for things like energy bills, subscriptions, rent and mortgages. However, they do have a key distinction. So, what are the differences in Direct Debits vs standing orders?
What is a standing order?
A standing order is a regular set of fixed payments that anybody can set up with their bank. The frequency of the payments can be decided, like the day of the month they’ll be taken and the amount that will be paid.
It can be set up by completing a standing order form or setting up the standing order in the branch, over the phone, or using online banking. Creating a standing order can be done in a matter of seconds via a smartphone app, which is now a very popular way of doing it.
An example of a standing order is a rent payment. After agreeing rent and signing a contract with the landlord or estate agents, a recurring payment would be set up for the same amount of money to leave the chosen account on the same day of every month.
Once the standing order has been set up, the amount specified will leave the account on the chosen date every month and will repeat until otherwise cancelled.
What is a Direct Debit?
A Direct Debit is a payment instruction from you to your bank or building society, authorising the company you want to pay to collect varying amounts from your account at regular intervals. After an agreement has been made, payments are then taken automatically. It is the customer’s responsibility to ensure that enough funds are available at the time of payment.
An example of a Direct Debit is paying for subscription services like Netflix, Disney+, broadband internet and gym memberships. These all involve agreements with the company you’re utilising the services of, and in return they take payment via Direct Debit.
Direct Debit vs standing order
So, what is a standing order vs a Direct Debit? The sole function of both payment methods involve making recurring, automatic payments from an account to pay for a service.
However, the key difference is that standing orders are a payment instruction, set up by an individual, to your bank, while a Direct Debit gives permission to a third party to automatically take money from an account.
A standing order can also be a recurring payment set up to repay somebody some money, or to pay into a separate bank account to build up savings. A Direct Debit requires an agreement between an individual and a company over a set period of time, like a 24-month contract for a new smartphone, for any money to change hands.
From a business perspective you have no visibility of standing orders so if a consumer cancels one you will not find out until the money fails to show up in your account. With Direct Debit, you have full visibility and control of the finances moving into your business account. If a consumer cancels a Direct Debit, you’ll be notified automatically.
The company that sets up the agreement must also inform individuals in advance that payment is to be taken. For regular payments of a fixed amount, it is the company’s responsibility to inform the customer with a single notification containing the details of the frequency and amount to be taken.
If payments vary in frequency and amount, a customer must be notified of the details in advance before each one is taken from their account.
A standing order does not require this level of assurance or detail.
Direct Debit sign-ups made easy with Interbacs
Interbacs’ Direct Debit Management Systems Online Sign-up includes customer sign-up modules to suit various business needs. These include fully compliant customer-facing secure Direct Debit sign-up websites that are bank approved, as well as modules for internal use and over the phone sales.
However you’d like to manage Direct Debit set-ups, Interbacs has the tools and advice you need to streamline your processes and comply with Bacs rules. The built-in Modulus checking facility verifies sort codes and account numbers at the point of sale. This is required to be updated monthly by Bacs However, the EISCD is updated weekly to ensure the bank details are always as up to date as possible.
We can also tailor your Direct Debit Sign-up Portal to display your logo and brand colours and integrate identity checking and bank name verification to provide extra reassurance to your clients.