Direct Debit vs standing orders

The difference between standing orders and Direct Debit can be confusing. Ostensibly, they follow the same model of automated payment collection from customers. However, there are key differences between the two which mean that you should consider carefully which is best for your particular business.

What are standing orders?

If setting up a standing order, your customer instructs their bank to pay you a set amount at regular intervals. This could be weekly, monthly, yearly, etc.

This means that the onus of payment is put firmly on the customer, as they must set up the standing order themselves and set the correct amount and frequency.

What is Direct Debit?

If setting up a Direct Debit, your customer gives you the authority and permission to collect money directly from their bank account whenever their payment is due. Payments and frequency of payments can vary.

With Direct Debit, the responsibility is with the business. You decide how much you will take from customers and how often, which you can change once you have gained initial authorisation (as long as you give notice).

You will also be notified of any cancellations or payment failures.

Which is better for my business?

  Standing order Direct Debit
Set up The customer controls the setup and a bank’s involvement is not needed. You are dependent on your customer setting up their standing order correctly. You control the setup and you do need a bank to be involved. You set the amount to be paid and the date of payments.
Management & Admin You will have to keep manually checking whether you have been paid by your customer. You also have to wait for each individual customer to pay you. You to set up the payment schedule yourself so you’ll always know when you’re due to be paid. You don’t need to check your bank account constantly. You can also submit thousands of payments all at once, saving you time.
Failure rates Varies depending on the industry/sector. Very low. Can be as little as <1%.
Notifications You will not be notified if a payment fails or is missed. You will have to check your bank account yourself and then identify the appropriate customer to chase. You will be immediately notified automatically if a payment fails. You can re-submit the payment whenever convenient.
Cost per payment Unless your bank charges you a small amount for each payment, standing orders are basically free. Very low. You can expect to pay either 1% or 20-40p on each payment. This depends on your bank or provider.
Flexibility Low. Payments are at fixed, pre-agreed intervals. If you want to change the date, amount, or frequency of the payments, you will have to convince your customer to cancel the current standing order and set up a whole new one. Very high. Once your customer has given you an instruction to set up a Direct Debit, you can change the amount paid or date of payments without further authorisation.
Late payments Low risk once set up but businesses often find it difficult to persuade customers to set up their standing orders quickly or to make any amendments. Very low. You charge the customer when their payment is due.
Customer protection No customer protection is provided once payment has been made. High. Your bank will immediately refund the customer if payment is incorrect.

About DFC

At DFC, we offer a full service approach to collecting Direct Debit membership payments for gyms, leisure centres and other health & fitness operators.

We are focused on making running your business easier. Reducing time spent on admin work, and helping you take control of your entire member journey to increase retention and revenue.

DFC is brought to you by Xplor, the first global platform integrating software, payments, and commerce-enabling services to help businesses thrive.

Click here to get in touch today to find out how we can help your business.

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