Standing orders and direct debits are two of the most popular ways of taking regular payments. They both allow you to collect money from a customer’s account, but in slightly different ways. So what’s best for your business, direct debit or standing order? Let’s clear things up…
What is a standing order?
This is when your customer tells their bank to pay you a fixed amount on a set date at regular intervals. With a standing order the customer is in control.
What is a direct debit?
Your customer gives you permission to take money directly from their bank account whenever a payment is due. Direct debits put you, as a business in control.
Benefits of direct debit:
- You have full control over a direct debit and can make changes without gaining authorisation every time from the customer.
- Direct debits help to maintain cash flow as money can leave your customer’s account and enter your account in the same day.
- They offer a full audit trail for you and your customers if any queries come up, giving both of you peace of mind.
- They give you the ability to charge different amounts if your prices are likely to fluctuate regularly because the amount you take from the customer’s bank account does not need to be fixed.
- You don’t have to rely on the customer because you control the payments, so you know exactly when the direct debit has been set up and how much for.
- If a payment failure does occur, your bank should notify you, reducing administration time for you.
- Direct debit payments are backed by the Direct Debit Guarantee. This means customers receive an immediate refund from their bank if an incorrect payment is made.
- Inconvenient for one off payments as it takes time to gain set-up authorisation from your customer and then their bank.
- Your bank or your customer’s bank may charge fees to process the payments.
Benefits of standing order:
- Generally free as the customer does all the hard work for you.
- Very little set-up admin for you.
- You won’t be notified if a payment fails so you’ll need to check your account for payments manually.
- Puts a lot of trust in your customers as they can change or cancel a standing order without notifying you.
- Requires work for you to administer the payments and update the accounts at your end.
- Very little flexibility as they only work for fixed payments at regular intervals.
So what’s best for you?
Generally speaking, if you own a larger business with more than 30 customers, standing orders just aren’t for you. Both direct debits and standing orders work well for fixed payments, but only direct debits can handle varying payments at irregular intervals. This flexibility, combined with the increased control and reduced admin time, makes direct debits the stronger solution for most, but not necessarily all businesses.
If you’d like to find out more about how Arro current accounts can make receiving and making business payments easy, sign up for your Arro Early Access account here.