What is the difference between direct debit and standing order?
There are many banking terms that cause confusion among those who are not knowledgeable about the language used in this industry. Two of these confusing terms are direct debit and standing order. They are both used in reference to withdrawals that are made from your bank account and refer to those that are made automatically. Standing order has been used for many years, but in recent years it is being replaced with direct debit.
What is direct debit?
Direct debit is a method that you can use to pay your bills each month. You sign up with the company so that the amount of the bill is deducted from your account and deposited in the company’s account. In this way you don’t have to go through the process of manually paying the bill each month and you can be sure that you won’t overlook it. The bank receives an instruction from you to deduct the appropriate amount each month. Instead of sending the bill to you each month, the company sends it to the bank and the payment is automatically made. Sometimes the same amount of money is deducted each month, as in the case of a loan payment, and in others it will be different as in the case of a telephone or electricity bill.
What is a standing order?
A standing order is the same as a direct debit and was the term used until only recently. The process of establishing a standing order is the same and it operates in the same manner. It instructs the bank to withdraw money from your account to pay the bills that you select. This instruction gives the bank the permission it needs to make the automatic payment each month. You only need to sign the permission for this once because it doesn’t need to be done on a monthly basis.
The difference between a standing order and a direct debit is that with a standing order the amount to be deducted from your account has to be the same amount each month and the withdrawal is made on the same day.
- Direct debit and standing order are the names given to the processes that banks use to automatically debit your account each month to pay your bills.
- In a standing order, the amount to be deducted each month has to be the same and the withdrawal has to be made on the same date every month. The only way you can make changes is to cancel the existing standing order and issue a new one.
- The amount withdrawn from your account and the date can change from month to month in direct debit.
- It usually takes a few days for the money to be deposited into the other account with a standing order. The transfer of funds takes place immediately with a direct debit. Many companies prefer to use direct debit because they receive the payment faster. This is the main reason that direct debit is starting to replace standing order.