A Standing Order is a regular recurring payment setup or authorised by the Payer. This can be setup by written instruction with your bank or more usually using online or mobile banking or a Third Party Provider.
Standing Orders have a fixed recurring amount and can optionally have a different start amount and final amount. They can be for a fixed duration (i.e. number of payments) or can be ongoing.
Standing Orders are usually set up to leave an account on or after a specific day of the month, although they can also be for daily, weekly, biweekly, every 4 weeks and quarterly payment intervals too.
Standing Orders are only paid on working day. They leave later if the due date is on a weekend or bank holiday. See Can payments go on weekends or bank holidays? for more details.
Benefits of Standing Orders
There are several benefits to a merchant in receiving payments by Standing Order as opposed to say Direct Debit.
It is very easy for a payer to reverse a Direct Debit that has already been paid. As part of the Direct Debit Guarantee a payer is entitled to a full and immediate refund of the amount paid from your bank or building society. This can be up to 6 months after the payment was made. This is the reason estate agents often insist on standing orders rather than Direct Debit for rental payments.
Just like Direct Debits, Standing Orders can be cancelled at any time by the Payer. With both Direct Debits and Standing Orders the merchant does not find out until the payment is not made.
Standing Orders Compared
|Criteria||Standing Order||Direct Debit||Credit or debit card||Cash or cheque|
|Set up||Customer/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|
|Cost||Free 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 rates||Low. 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.|
|Flexibility||Medium. 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 risk||Low. 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.|
|Admin||Low. 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.|
|Reversals||Low. 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.|