A standing Order is an older method of setting up a regular payment that is fixed in terms of value and the date of the collection from a customer’s bank account. The setting up of a Standing order is the responsibility of the customer; this is traditionally done via a paper-based mandate which is then served to their bank.
Direct Debit provides its users with a secure way of collecting payments for your services without depending on the end customer to put make that individual payment into your account each month. Direct Debits are regulated payments that are controlled by the business themselves; the same amount is collected and paid automatically, almost like “set and forget”. This method allows for end customers to set up the mandate in a variety of ways including electronic sign-up.
So we now have an understanding of what a Standing Order and what a Direct Debit is, what is the difference?
Standing order is a way in which customers make payments to businesses themselves. This is done by them instructing their bank every time a payment needs to be made. Due to this payments are often delayed or even missed. They can also stop paying at any time by giving no notice. This method relies on the customer pushing the payment each month and often means a higher percentage of defaults per month when compared to Direct Debit.
Direct Debits are a very convenient method, the scheme not only benefits the business it will be beneficial to the end customer too. Automatic payments mean the customer won’t forget to pay nor will the money be late. As a business, you may be able to offer customers a motivation to move to direct debits based on simplicity to set it up and less reliance on them to pay or even incentivise the change. With Direct Debit you are in control of the payment amount and the frequency of the payment (notice of a change is required) which again keeps you in control, this in a sense is the pulling of payments from the end customers account. As the Direct Debit scheme is electronic the data is a lot more useful to the service provider and can be generated a lot quicker.
Main differences between Standing orders and Direct Debit
- Direct Debits will be controlled by the service provider, they will be able to determine the date and amounts of the payments.
- Standing orders rely on the customer, they may end up paying you late or even miss certain months and they also determine the reference being quoted this could be incorrect.
- With Direct Debit as the service provider, you will know when and how much you are getting paid every month, which is crucial when determining cash flow and forecasting.
- Standing order payments tend to be scattered with the uncertainty of how much they will be paying
- You can often ask for notice if they wish to cancel
- With a standing order, the end customer can cancel at any given time without informing you that they are stopping payments, you will only know about this when you have not been paid.
- Standing Orders will mean you have to check your bank statements to reconcile your customer accounts.
- Direct Debit payments are electronic so we know when a payment mandate has been stopped which means we can act on this asap.
- With Direct Debit the failure rate is a lot less and on average you will only see 1% default.
What’s best for my business Direct Debit or Standing Order?
When we speak to prospective clients the common thing we hear is that they are mainly struggling with either non-payers, the administration load while trying to balance their time with wanting to grow the business they have worked hard to grow.
If you have very few customers Standing Order may be the option, however, this still will involve a level of administration which some businesses may find comfortable to manage. However, even with small businesses they may not have the skills or want to manage the other side of payment control which is ensuring the customers pay on time. SimplyCOLLECT provides our customers with the bonus of our customer management service which comes as part of a package to our customers.
Direct Debit allows our clients to streamline their background administration and cut costs spent on managing and reconciling payments and cutting administration as this is what we take care of.
The Direct Debit scheme is suited to businesses that have fixed and regular payments, however, the benefit to businesses is that when payments need to change the date or amount this easily taken care of.
If Direct Debit sounds like it would benefit your business or you would like to discuss this further please contact us at SimplyCOLLECT where we can discuss the difference between standing orders and Direct Debits in more detail.