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What are the key differences between a Standing Order and Direct Debit?

Although Direct Debit and standing orders are both ways of automatically moving money between bank accounts, do you know the differences between them?

It’s all about control

The main difference between a Direct Debit and a standing order, relates to who is in control of the payments.

A standing order is set up and managed by the customer. They control when payments are made to a business, and how much is paid.

A Direct Debit is pre-authorised and initially set up by the customer, but payments are then controlled by the business itself.

Because a standing order is for making payments, the customer instructs the bank to pay you – usually on a regular basis such as weekly or monthly. They can also stop payments without any notice.

A Direct Debit however, enables the business to take payments from a customer’s account once it has been arranged, and to be in control of the payment amount and frequency.

Although customers may feel safer being in control of a standing order, in reality they have far less protection once payments have been made. Payment mistakes are at their own risk, unlike the protection of the Direct Debit Guarantee which will ensure refunds for errors or fraudulent payments.

What else is different?

One important difference is in how changes are made to the amount of money and the date of payments. With a standing order, the customer will have to cancel the existing arrangement and set up a new standing order.

With a Direct Debit, you can change both the amount of money paid and the date without it needing to be re-authorised, as long as you give the customer notice.

Obviously, this means that standing orders come with a higher risk of missed or insufficient payments and can make it difficult for a business to manage their cash flow.

Keeping track of what payments have been made also adds to your admin time and process. Unlike a Direct Debit, you will not get a notification if a standing order payment fails.

Standing orders may work for your business if you only have a small number of customers and you trust them to make the correct arrangements and payments on time. For most companies though, the flexibility offered by Direct Debit to easily change payments and not have to chase and keep track of transactions, makes Direct Debit a more attractive option.

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