Standing Order vs Direct Debit: Differences and Use Cases

A standing order is an automatic way for a customer to pay a business. So is a direct debit. In both cases, the payment flows from the customer’s bank or building society account to the company without the need to authorise an individual transfer, send a cheque or pay in cash. So - what's the difference between direct debit vs standing order, and which is best for your business?

This standing order vs direct debit comparison contains all you need to know. Plus, we’ll also introduce Wise Business, a non-banking alternative which offers multi-currency accounts you can use to send direct debits for your suppliers at home and abroad.

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What is a standing order?

A standing order is an ongoing arrangement a customer makes via their bank or building society, to pay a fixed amount, at a fixed interval, to a specific individual or business. The payment is authorised once by the customer, and then continues as per the agreement until the customer cancels or amends it.

This sort of payment can be called a ‘push’ payment. That’s because once the customer has agreed the payment with their bank, the bank will simply push the money out on an ongoing basis until the arrangement is changed or ended.

A standing order might be the right option for a customer who wants to send a fixed amount of money every month to a family member, or to a business where the amount or due date never changes - paying for a subscription service, or for your rent, for example.

What is a direct debit?

A direct debit is also an automatic payment from a customer to a business. However, it’s not the same as a standing order.

With a direct debit, the customer agrees that the business can deduct an agreed amount from their bank at intervals. The customer is required to tell their bank that they have authorised a direct debit, and then the company is in charge of initiating the payments. Direct debit amounts can vary - and while they’re often also used for regular, recurring transfers, the dates can also change if they need to.

Direct debits are known as ‘pull’ payments, as the customer gives the business permission to pull funds from their account at intervals. As a safeguard, the business must inform the customer of the amount they intend to deduct and when, and the customer can also cancel the arrangement at any time. If something goes wrong, the customer is covered by a guarantee and will get their money back.

A direct debit might be the right option for a consumer paying the same business at irregular intervals, or where the amount might change. According to Bacs, which manages direct debits in the UK, 90% of household bills are paid by direct debit¹. It’s handy for payments which may change month on month, such as utility bills for example.

Standing order vs direct debit

Both standing orders and direct debits have their own features, advantages and disadvantages. There’s really not a clear winner in the direct debit vs standing order debate - which is best for you and your customers will depend on the situation.

Here’s a direct debit vs standing order head to head comparison on a few important points to illustrate:

How to choose between standing order or direct debit?

There’s no single answer here - which is best depends on what your business requires.

If you’re taking payments on a regular basis, but the due date of the payment or the amount may change, direct debit might suit you better. Direct debits are pulled by the business from the customer’s account, which means there’s a very low risk of failure once the arrangement is set up.

However, because a third party service is usually required to process direct debits, you’ll normally find there’s a small fee to pay. This is still more convenient and often cheaper than using cash or a cheque - but worth considering.

If you’re taking a regular payment of the same amount at the same interval, a standing order has the advantage that there’s not normally any cost to the business.

However, you’ll need to make sure your payments all come in on time as there’s no automatic flagging of missed or late transfers. Control of payments sits squarely with the customer, which can make this method have a slightly higher risk of failure compared to direct debit.

Ultimately, many businesses opt for direct debit as a more flexible, and more controllable way to get paid by customers.

Send international direct debit payments with Wise Business

If you have suppliers in other countries, or would love to trade internationally in the future, it’s super handy to have a Wise Business account.

With this powerful multi-currency account, you can send payments to 160+ and set up direct debits for your international bills. You can hold 40+ currencies in your account at once and switch between them when you need to, always with the mid-market exchange rate. 

Get started with Wise Business 🚀

Neither is the out and out winner when we compare standing order vs direct debit payments. Each has their own place, and can suit different business and customer needs. If you’re taking direct debits - or if you’re managing your business across borders check out Wise Business as a smarter way to hold and exchange currencies, with direct debit options for easy payments.

Sources used in this article:

1. Bacs - direct debit

Sources last checked 26-Sep-2024