There are two ways consumers and businesses can make regular, automatic payments and they are...
What is a standing order?
Occasionally, standing orders and Direct Debits are confused because they offer a similar payment solution. Both provide structured payments over fixed intervals but there are major differences between the two. So, what is a standing order? Continue reading to find out.
What is a standing order in banking?
A standing order is a regular payment of the same amount that’s paid on a specified date. This allows the bank to regularly process a payment to the chosen company or service. Standing orders can be used for a variety of different reasons, including:
- Making rent or mortgage payments
- Sending regular payments to a friend or relative
- Transferring money between accounts
- Donating to charity
Standing orders can be created and stopped at any time and there are no guarantees with the payment, unlike Direct Debits. They’re also not useful for paying things like bills, because the money owed can increase and decrease month to month. When creating the standing order, the value of the payments must be clearly specified.
How can standing orders be useful for your customers?
There are quite a few benefits for your customers to use a standing order to make their recurring payments, and they are:
- Free to use
- Easy to set up
- Payer chooses the amount
- Payers decides how long the payments are made for
Free to use
Standing orders are normally free to use for both customers and companies. This makes them an attractive option as it’s not costing anybody any money.
Easy to set up
A standing order is very simple to set up and takes just a few minutes. They can be set up from a banking app on a smartphone or via online banking, making them very convenient.
Payer chooses the amount
For a Direct Debit, an agreement is sent to the customer who must agree to the payment amount and the length of contract. For standing orders, the payer decides how much each payment will be when they set up the order.
Payer decides how long the payments are made
The same applies to the length of time for the payments too. When setting up the standing order, the payer decides on the payment interval periods and the date of each payment.
Can standing orders be problematic for some customers?
While there are advantages and benefits to using standing orders, there are also disadvantages for companies and customers too. They include:
- No payment notifications
- Risk of late payments
- Less flexibility
- High admin
- No guarantee
No payment notifications
The lack of payment notifications for standing orders means that it could take weeks for a payer to notice that a payment has failed. When a Direct Debit fails to complete, or ‘bounces’, both parties are notified that the payment did not go through.
Risk of late payments
Some businesses will struggle to get customers to set up their standing orders quickly enough, which risks late payments. Direct Debit agreements ensure a timely payment is made as and when it should be. This is set up by the company so it reduces the risk of something out of their control going wrong.
Customers are unable to amend the amount or frequency of a standing order once it has been set up. It must be canceled and created again with different details. This can affect payment processes at a company.
A standing order also requires a lot more administrative work than Direct Debits. A business waiting on payments via standing order will have to constantly check their account to see if payments have been made. Financial records may well have to be updated manually too, costing precious time and resources. Direct Debit management software makes Direct Debits much easier to manage, in comparison to standing orders.
Unlike Direct Debits, standing orders do not come with a guarantee. Standing orders offer no protection and once the money is gone, it is gone. Despite their ease of use, this can be seen as quite a large disadvantage when compared to Direct Debits.
Direct Debit support from Interbacs
Here at Interbacs, trusted Direct Debit providers, we have a wealth of experience in delivering payment management solutions and may be able to help your company go to the next level with your payment processes.
However you’d like to manage Direct Debits, Interbacs has the tools and advice you need to streamline your processes and comply with Bacs rules, thanks to our Bacs software.
If you’d like Interbacs to handle your Direct Debit processes, then our intelligent Direct Debit software can take away any stress and allow you to focus more time and resources on core business operations.
Learn all about the Direct Debit guarantee here.