What is a standing order and how does it differ from a direct debit

In the world of subscriptions, the various terms used may sometimes lead to confusion. From recurring payments themselves to standing orders and direct debits, they all share some similarities, but there are some fundamental differences.

In this blog post, we explore what is a standing order and the primary differences between it and direct debits. Let’s get started.

Standing order definition

Before delving into the differences between the two, let’s look at the standing order meaning. Several specific characteristics define it.

First, it is an order to your bank or financial institution in which you set up regular and fixed payments to an organisation or an individual. The frequency can vary – from weekly to monthly, bi-annually, or something else.

In addition, the recipient is usually an organisation or individual to whom you would like to pay money every month, but don’t particularly want to set up an online payment or go to your bank’s branch to do the same function each time.

In essence, you can make standing orders for payments such as rent, sending a fixed sum to your child away at university each month, making a monthly donation, or something else. They’re great for saving you time on performing redundant tasks.

Standing orders vs. direct debits

Now that you know what does a standing order means, let’s take a look at some key differences between them and direct debits. 

Let’s start with the way each one is set up. You set a standing order up with your financial institution. A debit order, on the other hand, is set up by an external company or organisation with which you have an agreement for them to withdraw funds from your account each month.

When it comes to fees, direct debits have a low set-up and management cost, if any at all, while standing orders are said to have ostensibly few costs involved.

What if you don’t have funds in your account?

But what happens if a standing order or a direct debit cannot go through to the intended recipient, for example, if you don’t have funds in your account? What are the outcomes?

With standing orders, you may incur a penalty fee and it could take some time for you to notice the failure because of the absence of notifications to that effect.

With direct debits, you are more likely to get notified immediately by your bank or financial institution, which means you can rectify the situation pretty quickly to ensure your payment goes through as intended.

Because standing orders are made for fixed payments regularly, there is some flexibility in terms of payments, but not much. With direct debits, on the other hand, such as for a telephone bill which may fluctuate each month, there is much more flexibility offered in terms of how much the provider can draw from your account. 

And what happens if you’d like to cancel a standing order?

You simply have to make the changes via your online banking platform, call your financial institution or go in and visit someone at the branch there. With direct debits, you may need to cancel your subscription or payment order with the organisation that you signed up with first.

Conclusion

And there you have it! Some clarity about the world of payments regarding standing orders and direct debits. While the former is usually used for fixed and regular payments and is something you set up yourself, direct debits are usually an agreement between you and an external company or organisation to withdraw a certain amount of funds from your account each month to ensure that your bills or subscriptions are settled.

Disclaimer: Please be aware that the contents of this article and the myPOS Blog in general should not be interpreted as a legal, monetary, tax or any other kind of professional advice. You should always seek to consult with a professional before taking action, since the particulars of your situation may materially differ from other cases.