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Direct Debit vs Standing Order
While both standing orders and direct debits perform a similar function, there are distinctions to be made between them.
Direct debits and standing orders are both types of automated payment methods that simplify recurring payments for both businesses and customers. When they are created, they allow businesses to withdraw funds directly from their customer’s bank accounts on a predetermined date.
Common uses of the two payment types are for subscription-based or membership-based businesses, and they’re both popular with businesses that provide such services. Part of what makes them popular is their reliability and ability to streamline the collection of payments.
While both standing orders and direct debits perform a similar function, there are distinctions to be made between them, and understanding these differences is important.
Direct Debit Vs Standing Order: Differences Explained
While the two are similar in the sense that they’re both types of pre-scheduled payment, there are some important differences. The main difference between the two is that with a standing order, the consumer sets up and manages the payment, while with a direct debit, your business does.
Standing orders are usually processed on the payment date, whereas direct debits can take around three working days to clear. Similarly, when you need to change the payment a standing order requires you to cancel and set up a new one if you want to change the amount or date. With a direct debit, you can change the amount or date without asking for further authorisation. The advantages of each payment method are further explored below.
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Advantages of Direct Debit
Direct debit payments are generally more popular with businesses as they tend to favour the business more; it’s easier to change payment amounts and frequencies and, should you need to, it’s easy to cancel too. Direct debit also often suits customers as the nitty gritty isn’t handled by them. This is not the case with standing orders, which put all of this in the hands of the customer. However, this is sometimes not favoured by some customers who would rather have control of their payments themselves.
Advantages of Standing Orders
Standing orders, meanwhile, have their own advantages over direct debit, not the least of which is the lack of fees that typically come with them. There’s also a lack of hassle for businesses that use standing orders as the onus to set up and manage the payment is on the customer, which makes things simple for your business.
Want to know more about direct debit?
If you want to know more about direct debit, you’re in luck. We’ve written a guide that breaks down all you need to know about taking direct debit payments. Check it out to find out all you need to know.
How do Direct Debits Work?
As you’ve read, direct debits are a convenient way for your business to automatically and periodically collect payments from your customer’s bank accounts, but they still need setting up.
To set up a direct debit payment, customers must first authorise the arrangement by signing a mandate form that provides their bank details. Once the business receives the completed form, it sets up the payment schedule with its bank. On the due date, the funds are automatically transferred from the customer’s account to yours.
In order for your business to be able to take direct debit payments, it must first be eligible. This means you need to get a Service User Number (SUN) – a six-digit number businesses use to get paid via direct debit. You can get a SUN directly from your bank, provided you meet its criteria.
Your customers must be given 10 days’ notice before each payment is taken. The notice needs to detail when the payment will be taken and how much it will be.
Want to know more about how card payments work?
While this article focuses on direct debit and standing orders, we also have in-depth guides that fully explain all the other things you need to know about taking payments. Explore below:
How do Standing Orders Work?
The process of setting up a standing order is wholly different to that of setting up a direct debit. With standing orders, the responsibility for both the setting up and the management is with the customer.
They are ones who set up the payment, which can be done online or in person. When they do set one up, they’ll need to provide your business’s bank details, the amount to transfer, the transfer date, and the duration of the order. Once all of this has been established, the bank will make the transfers until the order is cancelled. To cancel a standing order, customers simply need to notify their bank and the payments will stop.
Which Payment Type is Best for Your Business?
Standing orders and direct debits are both convenient methods for automatic payments. They can make life a lot easier for businesses that provide certain kinds of services as they take the hassle out of taking recurring payments.
When it comes down to which is better for your business, direct debits are probably preferable, as they provide businesses with more control and flexibility and put you in the driving seat. They do, however, involve a transaction fee and require more setup.
Standing orders are free and easy for customers to set up, but they offer limited flexibility and carry more risks for your business than direct debit.
FAQs
How can I start taking direct debit payments?
In most cases, you’ll need a Service User Number (SUN) to collect direct debit payments. Banks often only grant SUNs to well-established businesses that already have things like merchant accounts in place.
Alternatively, you can use a third-party provider to handle SUN acquisition and payment collection.
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