Standing order v direct debit: What's the difference?

Understanding standing order v direct debit can be confusing for merchants. Both are ways to collect recurring payments from customers. The key difference between them is that standing orders are managed by the customer. Direct debits are managed by the merchant. This means that direct debits can offer more flexibility. Here is a quick guide to what you need to know.

The basics of standing order vs direct debit

Standing orders have to be set up by the customer. If any changes need to be made, the customer needs to organise those changes. Likewise, a standing order can only be cancelled (or paused) by the customer. If a customer forgets to do this, then the money keeps being paid. The merchant therefore has to keep issuing refunds until the customer cancels.

Direct debits have to be authorised by the customer. Generally, the customer provides a one-time authorisation that holds good for all future payments. The customer is protected from misuse of this authorisation by a consumer protection scheme. In Australia, this is the BECS dispute scheme.

Once this authorisation is set up, the merchant takes care of all practical aspects of managing the payments. Not only do they set up the initial payments, but they also make any changes to them. The one exception is that customers are able to cancel their payment authorisation directly with their bank. This gives them an extra level of protection.

With GoCardless, customers are automatically notified any time an action is taken on their account. For example, if a payment is set up, changed or cancelled, the customer is automatically informed of this.

When to use standing orders

In a nutshell, standing orders work best when you’re taking fixed payments at fixed intervals from customers you highly trust. For example, small membership organisations (e.g. local sports clubs) might want to use standing orders to reduce their administration. Even here, however, there are still arguments in favour of using direct debits.

When to use direct debits

In a nutshell, use direct debits when you want control and/or flexibility. Both the control and the flexibility stem from the fact that you take care of the practicalities of managing payments. GoCardless provides a simple way to collect both recurring and one-off payments directly from your customers’ bank accounts.

The fact that GoCardless can collect one-off payments by direct debit creates even more flexibility. In particular, it allows you to collect regular payments that vary from one billing cycle to the next. It can also make it easier for you to onboard customers part-way through a billing cycle. You can take an initial one-off payment and then put them on a regular payment plan.

There are three ways you can use GoCardless. The first option is through the GoCardless dashboard. This has a very simple and user-friendly interface but still provides robust functionality. It’s ideal for smaller merchants, and larger merchants use it too.

The second option is to use GoCardless as an integration with partner software such as Xero, Quickbooks or Sage. This is a great choice for merchants who use the partner software in any case. They just carry on using the familiar interface but also get the benefits of GoCardless. The third option is to sign up for the GoCardless Pro package and connect directly to the GoCardless API.

When to use other payment options

If you want the fastest possible payment, then PayTo is the option for you. PayTo leverages Australia’s New Payments Platform (NPP) to enable you to take payments directly from your customer’s bank account in real-time.  

From a customer’s point of view, PayTo works very similarly to regular direct debits. The payee sends an authorisation request. The customer accepts the request, and their bank account is debited. In contrast to regular direct debits, however, funds can be confirmed immediately. PayTo can be used for both one-off and recurring payments.

We can help

GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.