Standing Order vs. Direct Debit

Standing orders and direct debits are easier ways of making regular payments such as household bills. As they are automated setting up payments through a standing order or direct debit means customers don’t have to go through the hassle of making the payments every month. They are mostly used for monthly payments but can be set at any interval; whether weekly, quarterly or annually.

What is a Standing Order?

A standing order is an instruction to your bank. If you are setting up a standing order payment you are instructing your bank to pay someone a set amount at a specific time. They can be used to pay an individual, a business or another organisation. Standing orders are fixed amounts, meaning they cannot be changed month on month. If the terms have to be changed (whether the amount, the recipient’s account details or the frequency of the payment) then it has to be cancelled and another one set up to replace it. In most cases a payment made by standing order will take three days from leaving one bank account to arriving in another.

What is a Direct Debit?

Rather than personally instructing your bank to make a payment, with a direct debit you are giving the authority to take a payment to an organisation, with two of the most common examples being energy providers and loan companies. The organisation can make changes to the payments, or they can vary month on month, although customers have to be made aware of these alterations. Unlike a standing order, therefore, the size of the payments can be variable. The transfer of funds from one account to another is instantaneous.

Direct debits are not as risky as they might sound. You might be wondering if organisations could get away with taking higher sums, or more frequent payments, than they should. In reality, this is very unlikely. Only certain organisations are approved to set them up and they are carefully monitored. A bank will reimburse a customer any disputed payments while an investigation, where necessary, takes place.

What are the Key Differences?

Even though standing orders and direct debits can be used for similar things there are some key differences. A customer controls a standing order while the organisation they are paying controls a direct debit. While amounts remain the same continuously for standing orders, they are variable in the case of a direct debit.

Which Should You Use?

The answer to this question depends on their purpose. Standing orders are useful for anything that remains the same every month, such as some loans, rent and mortgages. They can also be used for a one-off payment. Direct debits are the most appropriate choice for bills such as gas, electricity, water and phone bills that may vary depending on usage.

Tips

It is important that you keep an eye on your standing orders and direct debits as you don’t want to be paying for something once the term of agreement has passed. You should look out for discounts for paying via direct debit, something that is often offered, especially by utility companies. Organisations know a direct debit payment is guaranteed so they will offer discounts to encourage customers to use them. It is also cheaper for them and payments are instantaneous.

Andrew Marshall ©