Friends of old, Direct Debit v Standing Order
Legend has it that both were invented by two Greek gods, Standius Ordious and Directus Maximus Debious.
They've stood the test of time, both still of real value to those who rely on them.
We often get asked about the difference between Standing Orders and direct debits. If you’re not close to the electronic payment world you can be forgiven for thinking they’re the same thing, after all both do the same work, moving money from one account to another on a particular date.
The main difference? Primarily it’s that Standing Orders are better singers. Well not exactly. It's more so that Standing Orders transfer set amounts which cannot be changed whereas with direct debit the amount can vary. Both operate as regular payments but again the funds transfer date of the Standing Order cannot change whereas the debit date can be adjusted with direct debit.
We might be challenged here stating that Standing Orders cannot be changed. It is of course possible to setup another Standing Order for a different amount and different funds transfer date, ensuring to cancel the prior one, but this is cumbersome and is effectively a new instruction.
Going Subterranean - Push .v. Pull
Aside from the basic difference above there are some key things that separate Standing Order and direct debit, some fundamental laws indeed.
Standing Orders are push payments. This means the payment is initiated by the payer's bank, crediting the person or business seeking the funds.
In setting up a Standing Order a person is instructing their bank to pay a 3rd party on a particular date maybe every month for a specific amount.
There's absolutely nothing wrong with this, for a business collecting customer payments this way it means they'll receive the funds with no effort, once the Standing Order is in place.
The issue is getting these Standing Orders setup. And when they're setup you don't want to have to change them as it'll mean asking the customer (the payer) to set it up once again, and while they're at it they best cancel the original instruction.
Returning to the legend, there was once a time when a business could instruct their customer's bank to setup the Standing Order but this is no longer possible. In short it means the paying customer must be asked to setup the Standing Order with their bank. To ensure you know what the credit is for when it hits your account the customer would want to add the correct narrative to the instruction when setting it up.
SEPA direct debit, the art of pulling funds from customers' accounts.
Flexibility underpins the value of direct debit. Both the amount and the collection date (the date the funds leave the payer's account) can be changed by the business collecting the payment. There is one golden rule here when using direct debit, ensure your customer knows the amount being debited and when their account will be debited. Unless you want to feel the wrath of an annoyed customer it is critical to make sure they're aware. Other than that this is a beautiful means of collecting payment, especially where you offer credit to your customers.
In order to debit a customer's account a signed SEPA direct debit mandate is required, this can be obtained via emandate or paper mandate. Our FAQs have some information on these here.
In order to initiate the collection on a customer account, the business providing the service instructs their bank to request the funds from the payer's bank.
This is an electronic message to the bank, a service like DebaPay enables and manages this exchange.
So where Standing Order is rigid, SEPA direct debit is flexible.
Last point, the SEPA direct debit scheme informs you when a collection is not successful, you don't get this with Standing Orders. Many think that this can be managed easily in the case of the latter, we've see it cause a real problem in Credit Control where payments that don't arrive are not picked in time. Like the rain that fell last month, it's often too late to reach for the bucket.
Both Standing Order and SEPA direct debit are methods of moving money from one account to another on a recurring/regular basis, payer to receiver.
On one side the payer is raising the instruction to pay a 3rd party whereas on the other the business is asking their bank to request the funds from the payer.
A business has a choice as to what method to use. We work with businesses that use various methods of collecting customer payment including direct debit and card payments (merchant services). On occasion a customer may also have Standing Orders in place, these typically have been setup prior to the introduction of direct debit and are left running, no need to change something that's working.
The critical thing for a business is getting paid on time, both Standing Order and/or SEPA direct debit make that task more efficient. We strive to make people aware of the value of direct debit as we know first hand what it delivers. We of course want to grow as a business so you could say it's in our interest to promote the service but part of our DNA is helping people in business improve how they collect payment to be more efficient which helps them grow.
It is folly for a man to pray to the gods for that which he has the power to obtain by himself. Epicurus
We've witnessed the benefit delivered to companies after introducing SEPA direct debit, not alone does it improve cashflow but it often lifts a great weight within the Credit Control function. There is no fun in constantly chasing payment or even worrying about getting paid, removing even a fraction of effort from this endeavour and freeing up time is sometimes under estimated.
We would be delighted to speak with you should you be interested in learning more about how we can help.
Tying it doesn't cost the earth and it might just help you reach the stars. We said that.