We are often asked about the differences between Direct Debit vs Standing Orders. In particular, about which is the best alternative for businesses. Both payment methods are managed by Pay.UK and serve their purposes. Direct Debits however, offer distinct advantages that make them a more convenient and flexible choice for businesses (and consumers alike).
A Standing Order is an instruction that a customer gives to their bank. This is to pay a set amount to a specific recipient on a predetermined date or at regular intervals. The intervals could be weekly, monthly, quarterly or yearly. The amount will always be the same. Standing Orders have been around for ages. They were commonly used for magazine subscriptions or rent payments, where fixed amounts are due on specific dates. They can be set-up to pay for a certain number of transactions; an amount of time or to run indefinitely.
Direct Debits, on the other hand, offer a simple and efficient way to make regular and/or occasional payments to organisations. This method involves the Payer granting permission to the business/organisation (known as the Service User), to withdraw funds directly from their bank account. The Service User sets up the Direct Debit using the Payers account number and sort code. Before any money is taken, the Service User must provide details to the Payer. These include the amount and collection date – as they can change for each payment collected. In this way, the Service User gives prior ‘Advance Notice’ of the transaction to the payer.
The Service User is in Control
The most significant difference with Direct debits vs Standing Orders lies in the level of control that the Service User has. With Direct Debits, the Service User has Control and with Standing Orders it is the payer.
With Standing Orders, customers (payers) setup the payment. Any changes to the payment amount or date must be made directly by the payer via their bank. In contrast, with Direct Debits, customers authorise Service Users to withdraw an amount from their bank account, on a date as required. In this way, the collecting business has complete control.
Protection of the Direct Debit Guarantee
Whilst Service Users have much more control with Direct Debits, the scheme balances this with a powerful protection for the Payer. This is provided in the form of the Direct Debit Guarantee. This safeguards payers. If an error is made they can have a full and immediate refund. This safeguard is not provided with other payment methods such as Standing Orders.
Convenience of set-up
Direct Debits outshine Standing Orders in terms of convenience of set-up. Creating a Standing Order involves the Payer taking an action. They can create this via their online banking or by filling out a form and delivering it to their bank. Either way, the collecting business is reliant on the payer taking the action! They have to hope that the payer gets all the details correct. This would include getting the amount correct, getting the receiving bank details correct and using a reference that is identifiable to the Service User. The payer can decide which day to make the Standing Order payment – and it may not be the day the collecting business would prefer.
In contrast, businesses offering Direct Debit can either sign-up payers using a paperless methodology (eg via telephone or internet), or using a simple paper form. This paper form is known as the Direct Debit Instruction. The collecting business will take the action to create the payment method. They will ensure that correct details are used such as the correct amount, the best collection date and a suitable and identifiable reference. The business will ensure that the money is collected and they are not reliant on the payer remembering to ‘push’ the payment.
Direct Debits have become increasingly popular especially when the collection amount changes for each collection. With a Standing Order, the payer would have to make the change each time. With Direct Debits however, the collecting organisation can update the amount very simply. If a payer has a Direct Debit for a membership for example, and the payment amount increases (perhaps as part of an annual membership fee increase), the collecting organisation can simple update the Direct Debit collection.
Better Feedback with Direct Debit
Standing Orders may suit small businesses with a limited number of customers and predictable payments. A major disadvantage however, is that businesses are not told if the payer decides to cancel the Standing Order. With Direct Debits, if a collection fails or the underlying Direct Debit Instruction is cancelled, the Service User will be told. This will be in the form of a Bacs Report – an electronic communication / Advice produced by Bacs. This gives very immediate feedback to help identify reasons for changes in cashflow. It saves the business time and helps them manage payers and collections.
Direct Debit vs Standing Orders
For these reasons and others, Direct Debits offer clear advantages over Standing Orders. They offer greater convenience, control, and flexibility. Businesses can streamline their payment processes, and customers can enjoy peace of mind, knowing they are protected by the Direct Debit Guarantee. Embracing the benefits of Direct Debits can lead to improved financial management and a smoother payment experience for all parties involved.
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