Direct Debits and standing orders – what's the difference?


Direct Debits and standing orders – what's the difference?

When you have a number of outgoings, it can be easy to lose track of the different dates each payment is due and how much you need to pay. That’s why setting up either a Direct Debit or a standing order can be a good idea, as they automatically make a payment for you.

Both are useful ways of keeping on top of your outgoings, but each one is more suitable for different situations – let’s find out what they are.

How a Direct Debit works

When you set up a Direct Debit, you give a firm permission to claim money from your current account to pay a specific bill – usually once a month (but sometimes more or less often). The amount of the payment isn’t fixed, so Direct Debits are useful for variable bills like your phone bill or gas bill. The date of the payment isn’t fixed either, although in most cases it will usually be about the same time each month. 

Because you are giving a firm permission to take money from your account, you get protection from the Direct Debit guarantee. This says that the firm must always tell you how much they are going to take, and the date, in advance. If they don’t then you can ask your bank to pay the money back to you.

By setting up a Direct Debit you should eliminate the possibility of missing payments and being hit with costly bank charges or damage to your credit history. However, problems can still occur if there is not enough cash in your bank account to cover the payment – and your bank “bounces” the Direct Debit – i.e. refuses to pay it. If that happens you may be hit with charges from both your bank and the firm you are trying to pay. Alternatively, your bank may make the payment but put you into an unplanned overdraft – and these fees can be costly.

It’s good to remember that many utility companies offer discounts on your monthly bill if you pay by Direct Debit.

How to set up a Direct Debit

It’s quite easy to set up a Direct Debit, and you do it directly with the company that you want to pay. They may allow you to set it up over the phone or online, or they might send you a form to fill in. You don’t have to speak to your bank as the company you’re paying will do this for you.

Remember, you’ll usually have to have a current account to set up this kind of payment. Although, in some cases you may be able to do this if you have a prepaid card, credit union account or a basic bank account.

How a standing order works

A standing order is an instruction to your bank to pay another account regularly. However, it puts you in control of how much you pay each month and the date that it is paid.

Setting up a standing order means you’re in full control, as you can choose both the amount you pay, the date, and how long the regular payments last for. For example, you could choose to pay £600 to your landlord each month for one year, or you could set it up to pay each and every month until you decide to cancel it.

Unlike a Direct Debit, they’re typically used to pay either someone you know – like if one of your children is living at university – or to transfer money into a separate savings account of your own. But, you could also use one to pay a regular £100 off your credit card each month, for example. Standing orders are less flexible than Direct Debits, as every time you want to change the amount you pay, you will have to contact your bank.

How to set up a standing order

Again, it’s really easy to set up a standing order, and you should be able to do it from your current account and from most basic bank accounts. You might be able to set up standing orders from a credit union account or a prepaid card, but this depends on the individual provider.

Many banks offer an online service where you can do this pretty quickly, which you should usually be able to find on your internet banking if you have access to this kind of service. If not, you should be able to set it up over the phone or by filling in a standing order form with the account number and sort code of the recipient and handing it to your bank in a branch.

What if I want to cancel?

If you want to cancel either a Direct Debit or a standing order, it shouldn’t be difficult. With a standing order, you can change every detail – including cancelling it – at any time by contacting your bank. With a Direct Debit, to be safe, it makes sense to contact both the firm you are paying and your bank to tell them that you are cancelling it. Remember, you may still be tied into a contract when paying bills with a Direct Debit. This could mean you’ll have to continue to pay for a certain amount of time outside of the Direct Debit, so it’s important to remember this to avoid missed payments charges.