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A simple guide to standing orders

A standing order is an instruction between bank accounts to make a set payment from one to the other on a regular basis.

It’s possible for businesses receiving frequent payments from their customers to do so via standing order but there are other options available.

Customer-actioned

Standing orders are generally simple for your customers to set up, as long as they select the correct payment amount and frequency.

They will remain in control of the payments though, so any changes to how much they need to pay will also need to be amended by them. Payments by standing order won’t usually cost you or your customer any fees.

Your customers can set up standing orders on the phone, in person or online with their bank, and will need your account details to set up the payment.

You may find it convenient to pay some of your own costs such as rent or utilities through standing orders too.

 So what’s the downside?

To take payments by standing order, you’ll need to have a high level of trust in your customers.

As it’s the customer that sets up the payments, they’ll need to arrange the correct amount and frequency, and use the right account information. If they make a mistake entering your sort code or account number, payments could go to someone else’s account and be hard to re-claim.

Although customers may feel they have more control over payments made by standing order, they actually have less protection than other methods. Direct Debit payments are covered by the Direct Debit Guarantee, and credit cards offer purchase protection for payments above £100 and up to £30,000.

Your customers will also need to make changes to payments if they’re needed. This usually means cancelling a standing order and setting another one up. Therefore, if payment dates or amounts change frequently, standing orders don’t offer the flexibility needed. This increases your risk of a late payment, or a lost customer.

Standing orders can also be cancelled by the customer at any time and with no notification – which can be a challenge for businesses. You will also not be notified of failed payments until you discover it for yourself.

All of these issues mean you can expect to have to commit extra time to stay on top of your admin and accounts to make sure you are receiving the payments you are due via standing orders.

Is it right for my business?

Businesses with a small number of regular trusted customers may benefit from taking standing order payments.

If the payments your customers make are usually a fixed amount that is unlikely to change, then it could be a good option.

When payments will change in their regularity or amount, Direct Debit is a better option. In contrast to standing orders, Direct Debit payments are managed by the merchant, allowing payments to be ‘taken’ from customer accounts once authorised.

You can have a more in-depth read about some of the key differences between payments via Direct Debits and Standing Orders here.

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