What’s the difference between a direct debit and a standing order?

Paying all of your bills and other financial obligations on time each month is very important. Those that are able to do this will have a higher credit score and pay less money on interest and late fees. While paying all of your bills on time is important, it is easy to forget to do this.

To make paying your bills on time easier, taking advantage of automated bill payments is a great option. Two of the most common ways to do this is by doing either a direct debit or standing order. While these terms are often used interchangeably, there are actually many differences between direct debits and standing orders that should be understood when determining which is right for your situation.

Director of Payment

One of the biggest differences between a direct debit and a standing order is the director of the payment. With a direct debit, you will complete a form that will allow a company to automatically withdraw and pull funds out of your account on a monthly basis when the bill comes due. With a standing order, you will instruct your bank to send money directly to another party. Ultimately, under a direct debit, the payee has control of payment while under a standing order the payor has control.

Flexibility of Payment

Another big difference between the two payment options is the amount of flexibility that you have with a payment. With a standing order, you will only be able to send a set amount of money each month. This can make it an ideal option if you have a fixed monthly payment, such as a car loan or housing rent payment. With a direct debt, the payee will be able to pull any amount of money that is due, which can then fluctuate from one month to the next.

Modification of Payment

One challenge that people can have with a standing order is that they are not very easy to modify. Instead of altering the amount of money that will be sent each month, you will have to contact your bank and have the existing standing order cancelled and then have a new one created. With a direct debit, the responsibility is on the payee to request funds through the direct debt whenever payment is due.

Notifications

Depending on your financial institution, you may not receive a notification before the standing order payment is made. With a direct debit, you likely will receive an email with the amount due, the date of the debit, and other information at least a few business days before the debit will take place. This will allow you to ensure you have appropriate funds in your account ahead of time.

Ultimately, both a standing order and a direct debit provide a consumer with a convenient way to make a bill payment. Standing orders are generally a better option when you have a fixed monthly payment that is due at the same time each month. Direct debits are often ideal when you have a payee, such as a utility company, that allows for direct debit payments and will have fluctuations in the amount of money owed.