What is the Difference Between a Standing Order and Direct Debit?
Standing orders send payments arranged by you. Direct debits are collected by the person or company you are paying.
If you forget to pay a bill or are late with a payment, you may be charged a fine, and it can be a hassle to sort out.
Instead, you can set up a direct debit or a standing order and the payment will be made automatically on a date you choose. Both are easy to set up: you can usually do it in a few minutes from your online banking or smartphone app, or you can phone your bank to set it up for you.
Here we look at the difference between standing orders and direct debits and explain how they work and when to use them.
The difference between a standing order and direct debit
Both direct debits and standing orders can be used to make automatic payments, but there are some key differences:
- Direct debits give companies permission to take an amount of money from your bank account on a set date. They are often used for paying household bills such as energy, and the company will take the amount you owe.
- Standing orders allow your bank to pay another person or account a set amount on a regular basis, such as money into a savings account or rent. You may set up a standing order for a fixed number of weeks or months, or let it run indefinitely.
How direct debits work
What do you need to set one up? Direct debits will be set up by the company you are paying, and the process usually can be completed online, over the phone or by filling out a form.
How do you set it up? While the company you’re paying may set up the direct debit, you will need to agree to let it collect the money you owe from your account. The amount could change — imagine how your energy bill might fluctuate — and if it does, the company will need to contact you to tell you in advance.
How can you cancel one? You will need to contact your bank to cancel a direct debit. Usually this can be done through an app or via online banking.
What if your payment changes? You should be told at least 10 working days beforehand.
What’s the advantage of using direct debits? You’ll often be given a discount for paying via direct debit (with energy bills, for example). It’s quick and easy to set up, and it means you don’t need to worry about missing a payment.
What are the disadvantages? Even though the payments are being made automatically, it’s still up to you to make sure you have enough money in your account to make the payment. If not, you could be charged a fee by your bank.
How standing orders work
What do you need to set one up? You will need to know the amount of the standing order, the date you would like it to leave your account and the account the money is going to.
How do you set it up? You are in charge of setting up a standing order, which can be done via online banking, a banking app, over the phone or in a branch.
How can you cancel one? As a standing order is paying the amount of money you have decided upon, you are free to cancel it whenever you need to. You can also stop and start payments at any time if you don’t want to cancel it completely.
What are the advantages? Standing orders are a useful way of paying a fixed sum of money on a regular basis to another person or into your own accounts, such as money going into a savings account.
What are the disadvantages? If you have a standing order set up but don’t have enough money in your bank account, you could be charged a fee by your bank.
What is a Bacs payment and how do they work?
Bacs is a system used to make electronic payments directly from one account to another. This is the way the majority of direct debit payments are made. Payments usually take three working days to clear.
How do you use direct credit?
It’s also possible to make payments via direct credit. This works in a similar way to direct debits but is mainly used to pay salaries (more than 150,000 companies use this system to pay wages). It can also be used for paying out pensions, dividends and refunds.
Is my money safe with a direct debit or standing order?
If there is a mistake made with a direct debit, such as the company taking the wrong amount, you should be able to get this money back. The Direct Debit Guarantee is in place to protect consumers should this happen.
The same protection does not exist with standing orders, meaning that if something goes wrong there is no guarantee you will be able to get your money back.
Rebecca Goodman is a freelance journalist who has spent the past 10 years working across personal finance publications. Regularly writing for The Guardian, The Sun, The Telegraph, and The Independent. Read more