Standing Orders vs Direct Debit

Photo by Eelena Mozhvilo
Standing Orders compared to Direct Debits

Direct Debits and Standing Orders both offer the ability to make regular recurring payments.

Historically, Direct Debits were initiated and set up by a merchant with the customers written consent. Direct Debit details are now often captured online. However, Standing Orders are set up by the customer directly with their bank.

With the arrival of Open Banking Standing Orders can now be initiated online by Authorised PISPs. The differences between the two are reducing.

Main Differences

Direct Debits are covered by the Direct Debit Guarantee which protects consumers at the expense of the merchant, who risk reversals due to fraud and disputes.

Standing Orders are for a fixed recurring amount.

These two similar, but different methods, are likely to be complicated by the arrival of Variable Recurring Payments. VRP is a new initiative from Open Bankings to improve recurring payments.

Standing Orders Compared

Below we compare the difference between Direct Debits and Standing Orders for the merchant.

CriteriaStanding OrderDirect DebitCredit or debit cardCash or cheque
Set upCustomer/Bank/Provider can all set up.Bank/provider needed. Merchant controls the setup, payment amount and date.Provider needed. You’ll need to set up a merchant account.None
CostFree for customers or Paydog can setup, track and match for 1.5% Max £5.Varies. Depends on provider. E.g. GoCardless charges 1% +20p per transaction.High. Typically 2-3% per payment, plus monthly fees for merchant account.Free but you should also factor in administration costs
Failure ratesLow. Delayed on weekends and Bank Holidays.Medium ~ 1% with GoCardless. Delayed on weekends and Bank Holidays.High. Failed payment rates typically >5% due to card expiry, cancellation or spending limits.Low. Occasional rejections if unsigned or insufficient funds.
FlexibilityMedium. Can be for Daily, Weekly, BiWeekly, every 4 weeks, Monthly, Quarterly.

Amending amount or date requires customer approval.
Varies. Usually Monthly but depends on DD provider. You can collect variable amounts, change payment amount or date at risk of customer requesting refund under Direct Debit Guarantee.High. You can collect variable amounts, change payment amount or date without any further authorisation.Low. You rely on the customer to make a payment, which can involve chasing.
Late payment riskLow. Once set up, low risk, hence used for rental payments.Low. You can automatically charge customers whenever payment is due.Low. You can automatically charge customers’ cards whenever payment is due.High. Not automated and customer has full control.
AdminLow. Assuming your accounting package is connected to your bank or with Paydog you can track and match these monthly payments.Low. Automatically submit multiple payments at once. Automatically update your accounts. Instant notifications when payments fail. Easily track payments without checking bank statements.Medium. Once payment is set up, there’s more checking .High. All manual processes means a lot of admin time for your business.
ReversalsLow. Greater protection for merchants.High. Immediate refund from customer’s bank in the event of an incorrect payment, under the Direct Debit Guarantee.Medium (for credit cards only). Under section 75 of the new Consumer Credit Act, credit cards must provide protection for purchases above £100 and below £30,000.None.
Standing Orders Compared with Direct Debit, Cheques and Cards

As well as instant payment, Paydog offers merchants the ability to create and track recurring payments using Standing Order.