Direct Debit vs Standing Order
Direct Debit and Standing Order, are two banking terms that have long been confusing among people. These banking terms direct debit and standing order are used in connection with withdrawal from your bank account. Money is automatically withdrawn in favour of another account from your account through both these instruments. Standing orders was long in use all over the world but is being replaced by direct debit for some reasons.
Direct Debit is indeed a very smart way of paying your utility bills such as electricity, gas or house tax by allowing the bank to directly take away the amount from your bank account and transfer it to the concerned companies account. This is actually an instruction to the bank to carry out payments from your account to different accounts. This means that when the institutions authorized by you present their bills to the bank, the bank does not need your permission every now and then to make payments to them. In some cases the amount of money is same every time as is the case with EMI’s of home loan or rent, while in the cases of utilities that amount could vary all the time. Companies love to receive payments through direct debit as the payments are instant, almost as if you wired the money in their account.
A standing order is similar to direct debit and was in vogue till not so long ago. It is also called standing instruction as it is an instruction on your part to your bank to withdraw money from your account and make payments to other accounts. These payments are always the same and take place at regular intervals. Normally SO is used to make payments for rent or EMI of your home loan. These standing orders were beneficial to the account holder as he was aware of the day and amount he needed to deposit in his account so as not to default. A standing order is applicable only when the amount to be paid is regular and also same each time.
Difference between Direct Debit and Standing Order
As is evident, both standing order and direct debit are instruments used by banks to facilitate transfer of money from the accounts of their customers to various institutions. But there are differences between the two which are as follows.
In case of Standing Order, the withdrawal takes place at regular intervals and the amount of money is fixed. The amount cannot change unless you cancel the earlier Standing Order and issue a new one. On the other hand, both the amount and interval can change in case of Direct Debit.
In case of Standing Order, it usually takes 3 days for the money to reach the recipients account and the transaction is free for you. In case of Direct Debit, the transaction is instant and the company receives the amount fairly quickly. As institutions receive payments quickly, they offer discounts to customers who pay through Direct Debit.
Because of these reasons, Direct Debit has become very popular and is gradually replacing Standing Order all over the world.
|Direct Debit||Standing Order|
|Withdrawal interval can be changed||Withdrawal takes place at regular intervals|
|The transaction amount can be changed||The transaction amount is fixed|
|To change the amount of money existing SO has to be cancelled and new one issued|
|Speedy transaction||Comparatively slow, 2 -3 days required|