It is easy for people to confuse Direct Debit and Standing Orders. While they are both beneficial in their own way, it’s important to learn how to distinguish them so that you can get the best benefits out of using them.
This guide will help you understand Direct Debit and Standing Orders, and when it is appropriate to use them.
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What Is Direct Debit?
A Direct Debit is an instruction from you to the bank to allow someone else to collect payment from your account. You fill out a Direct Debit Mandate form to allow this to happen. Once it is authorized, the organization can collect payments.
So why would this be useful?
- No more worrying about your next payment: Once you set up a Direct Debit, an organization can take the payment it needs from your account. You won’t have to worry about making the payment anymore, as all of your important bills will now for sure be paid on time.
- Subscriptions and Memberships: Subscriptions and memberships are ideal for this type of method. Memberships to gyms, clubs, magazine subscriptions etc. will all be paid on time without you having to worry about them.
What are the benefits?
- Cost: Business sometimes offer incentives for using Direct Debit
- Customer Protection: You can get instant refunds for any payments that shouldn’t have been made
- Convenience: Payments are automatic, so you never have to worry about your next payment again
Direct Debit vs. Standing Orders
The Process
Standing Orders are specific instructions to your bank to make a payment towards an organization/person. This means that you are manually making payments to a separate party, they don’t play a part in actually taking the payment.
Standing Orders are useful for fixed scheduled payments, such as rent. Direct Debit is more flexible however, as it can be used on variable expenses as well such as your electricity/heating bill.
When you use a Standing Order, you specifically tell your bank when to pay and how much to pay. Direct Debits are much easier to understand, all that you have to do is fill out an instruction form and let the bank and organization do the work.
Customer Protection
Stand Order also has virtually no customer protection. Since you have full control over the payment, it’s your responsibility for making sure you calculated exactly how much you need to pay. However, Direct Debits are different. Since the responsibility of taking the payment is placed on the organization, they will be liable for taking out unnecessary funds from your account. This makes it easy for you to get a refund on any payments you didn’t want to make.
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Bottom Line
Direct Debits and Standing Orders both have their uses, so it’s important that you understand the difference between them. While Standing Orders give you more control over the payments, it can be harder to manage. Direct Debits allow you to shoulder the responsibility of payments, but they don’t offer as much control as Standing Orders do.
Hopefully you found this post useful, if you wish to read more, be sure to check out HMB and see our posts on more Bank Guides as well as the best credit card bonuses and best savings rates.
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