What Is a Standing Order?

A standing order is a set of instructions that any individual or business in the UK can give to their bank to make payments automatically on a preset schedule. They’re frequently used to make recurring payments such as rent or mortgage payments.

Standing orders are usually free, which can make them a good alternative to other online payment methods. However, they’re not very flexible and can cause confusion in some instances.

In this guide, we’ll break down what a standing order is and explain when to consider using one.

What Is a Standing Order?

A standing order is a method of making recurring payments from one UK bank account to another. It’s a set of instructions that tells a bank to send a fixed amount of money to a specific account at a regular interval. 

Standing orders are always set up by the payer rather than the recipient of a payment. These orders can be valid until a certain date or left in place until they’re cancelled.

Standing orders are available for nearly all personal and business bank accounts in the UK. There’s usually no fee to set up or send money with a standing order.

How Do Standing Orders Work?

Standing orders are relatively easy to set up. Most banks enable you to create a standing order online, but some still require you to submit requests on paper.

When creating a standing order, you’ll need to provide details about the recipient’s account and specify how much money to send with each payment. You’ll also need to specify the frequency of payments and how long the standing order should last. You don’t need to get authorisation from the recipient to set up a standing order.

Once your standing order is in place, your bank will send transfers on the schedule you requested. Transfers will continue until your standing order ends or until you cancel it.

Standing Orders vs Direct Debits

Importantly, standing orders are distinct from direct debits—a type of BACS payment. Although both involve transferring money between bank accounts, the way these payments work is very different.

Standing orders are initiated by the payer and are designed to send money from the payer’s account to a recipient’s account. Moreover, standing orders involve sending fixed amounts of money on a fixed schedule.

Direct debits are initiated by the recipient and are designed to take money from the payer’s account. The recipient must receive prior authorisation from the payer and notify the payer of an upcoming debit. Payment amounts can vary between transfers and transfers don’t necessarily take place on a fixed schedule.

Another important difference is that while standing orders can be used by either individuals or businesses, only businesses with a merchant account can initiate direct debits. Individuals can’t initiate a direct debit from another person or business.

When Are Standing Orders Used?

Standing orders are generally used for payments to companies that take recurring payments or to pay recurring bills that have fixed payment amounts. For example, standing orders are often used for the following:

• Transferring money from a current account to a savings account
• Paying for mortgage or rent
• Sending money to family members on a regular basis
• Making recurring donations to a charity

When Are Direct Debits Used?

Direct debits are frequently used by businesses to take recurring payments from their customers. Direct debits are often used to take payment for:

• Rents or mortgages
• Utility bills
• Recurring subscriptions or memberships
• Instalment purchases
• Invoices for services

Direct debits can also be used for one-time payments. This is common for large purchases, such as home renovations or large invoices, since direct debits have much lower processing fees than credit card or debit card payments.

Should Your Business Use Standing Orders or Direct Debits?

If your business has a merchant account, it’s usually preferable to take direct debits rather than use standing orders.

Direct debits are initiated by your business, whereas standing orders must be set up by your customer. Direct debits put you in control of getting paid instead of leaving you waiting for your customer to submit a standing order.

In addition, direct debits are more flexible than standing orders. As an example, say you want to bill for services every month. With a direct debit, you can adjust the payment amount to match your monthly invoice. With a standing order, your customer needs to adjust the payment amount specified by the order.

Another reason to use direct debits is that they require less effort. If a customer sets up a standing order, you won’t be notified of payments, which means you’ll need to check whether you were paid and follow up if you weren’t. With a direct debit, there’s no confusion over when payments will be made.

How Safe Are Standing Order Payments?

Standing order payments are extremely safe. They typically use the BACS payment network, which has been in use for more than 50 years and processes more than 4.7 million payments annually.

However, it’s important to remember that you have standing orders in place. If you make an unwanted payment because you forgot to cancel a standing order, you can only get your money back if the recipient agrees to return the funds.

For this reason, it’s a good idea to set date limits on every standing order. You’ll need to reissue these standing orders when they expire if you want to continue making payments.

Standing Order Pros and Cons