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Standing Order VS Direct Debit. Explained Simply

Standing Order VS Direct Debit. Explained Simply

Late payments are frustrating. Chasing late payments can be even more infuriating, forcing international merchants to perform unnecessary, mundane tasks that could easily be performed by a machine – a waste of time when they could be adding real value to their businesses.

Global SMEs need to find simple ways of collecting payments from their customers automatically. Standing orders and direct debit change the ballgame for many international merchants – because when payments are collected on time, it ensures that your business’s liquidity levels remains stable.

Standing order versus direct debit – who wins?

In this article, you’ll find out all you need to know about these two automated payment methods.

This article at a glance:

Standing orders and direct debits are often confused because they are both automated payment methods. However, they are not the same. The difference lies in who controls the payment process – you or your customer. Choosing the right one depends on the size of your business.

What is a standing order?

A standing order lets you collect regular, fixed payments from your customers’ bank accounts.

Remember, when you set up a standing order:

  • You cannot change the date of payment deduction
  • You cannot shorten or lengthen the duration of recurring payments
  • Your customer is required to set up the standing order and decide payment amounts
  • Your customer must submit a form to their bank to set up the standing order

Thus, you have to ensure that your customer enters all the correct information. It can be a hassle to cancel and go through the entire setup process with the bank again.

What is a direct debit?

A direct debit allows you to take payments directly from your customers’ bank account.

Even after setting up a direct debit, you can still:

  • Change the frequency of payment
  • Edit the amount of payment

To set up a direct debit, your customer will need to sign a Direct Debit Mandate, an instruction that gives you permission to take funds out of your customer’s account.

There are three ways to set up a direct debit instruction: secure online banking, over the phone, and physical paper Direct Debit Instruction form. See this example from GoCardless.

Difference between a standing order and a direct debit

We’ve made a nifty guide for you. The main differences between a standing order and a direct debit are as follows:

Standing order Direct debit
Who makes the payment The customer. Payments can be made weekly, monthly or annual. You. It’s your responsibility to collect payments directly after your customer gives you authorisation.
Who has control over the payment The customer. Your customer has the right to make changes to payment frequency and amount. They can choose not to inform you of changes as well. You. As long as you notify the customer beforehand, you can change the amount and frequency of the payment.
The fees involved Usually free. Additional charges may occur depending on your bank. It all depends. Your direct debit provider may charge fixed fees or percentage fees.
Payment failure rates High. If your customer’s account lacks funds or if they cancel the payment, the payment will not go through and you will not be notified. Very low. Even if there is a failure, your direct debit provider will inform you.
Flexibility of the payment No flexibility. If you get the payment details wrong, your customer will have to cancel and redo the entire process again. High flexibility. You can change the frequency and amount of payment without authorisation. You will still need to notify the customer.
Risks of late payment High. Your customer may not set up the standing order in time. Low. You can edit the payment dates yourself.
Administrative setups A lot. You will not receive notifications on whether the payment goes through or fails. Thus, you must regularly check on your business accounts. Much less. You will be notified by your direct debit provider when payments are made.
Customer protection None at all. Once the payment has been made, there is no turning back – even if the payment was made incorrectly. High. All direct debit payments are backed by the Direct Debit Guarantee. Your customers will be refunded if the payment was made incorrectly.

Standing order versus direct debit: which is right for your business?

It depends on your company size
Standing orders are rigid and give you or your customer no room for inaccuracies. Therefore, you have to be vigilant as to whether your payments are getting through to you and that your customers have enough money in their accounts to make the payments on time.

A standing order is good if you only collect fixed amounts at a time – you can’t change the payment amount once a standing order is confirmed. To do so, you’ll need to ask your customer to cancel and repeat the process.

Small companies with a small number of regular customers making fixed payments at fixed times are best suited to standing orders.

If you’re looking for flexibility, going for a direct debit should be a no-brainer
You free yourself from tedious administrative tasks by getting notified whenever a payment fails. Ultimately, the ball is in your court – you have the upper hand in controlling when you want to collect payments, and you’re not bound to a fixed payment amount.

Want to live a hassle-free life? Ensure you receive payments on time.

At Silverbird, we offer you a smart alternative to traditional banking. Hold, transfer and exchange foreign currencies online simply by using a single account. Convert over 30 currencies within a single account. Avoid facing low forex rates when transferring your funds with multi-currency accounts catered to your needs.

Start onboarding today.

Author: Silverbird Content Team
Illustration: Kate Faldina

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