Last editedJan 20232 min read
If your business collects regular payments, there are several methods to choose from. One of these is a standing order, a type of automated bank payment. What is a standing order, and how does this compare to other types of recurring payments? In this guide, we’ll compare the pros and cons of a standing order vs. recurring payment methods to help you find the most efficient fit.
What is a standing order?
A standing order is an automatic payment method used to make fixed, regular payments. To initiate the standing order, the business or individual gives their bank instructions regarding the amount and timing of each payment. It’s fully controlled by the payer, who sets it up and can cancel it at any time.
Standing orders are used in countries including the UK, Ireland, India, Netherlands, New Zealand, and others. Within the United States, there are similar services you can set up with the bank where checks are automatically mailed at regular intervals.
Is a standing order a direct debit?
Within the United States, ACH direct debit payments are more common than standing orders. These are also automatic bank payments, so how do they differ from a standing order? The main difference between direct debit and standing order starts with how each payment is initiated. Standing orders are “push” payments because the payer initiates the transaction. ACH debits are “pull” payments because the business asks permission from the customer to pull funds from their account.
Another key difference between direct debit and standing orders is flexibility. A standing order is set up for a fixed amount to be taken at regular intervals. ACH payments can vary each month, making them more suitable for usage-based bills like energy and gas.
What is a recurring payment?
Both ACH debits and standing orders are examples of recurring payments. A recurring payment is any type that’s set up and taken at regular intervals. There are two main categories of recurring payments, including fixed and variable.
Fixed recurring payments are fixed sums, such as subscription fees for streaming services.
Variable recurring payments can change based on usage, such as utility or phone bills.
In addition to direct debit and standing order payments, recurring card payments are another example of this type of payment. Sometimes called Continuous Payment Authority or CPA, recurring card payments give a business permission to take money from a preauthorized debit or credit card at regular intervals. Rather than making the arrangement with a customer’s bank, it’s made directly with the business. Payment terms are also more flexible with recurring card payments, which can be pulled when invoices are due or spend limits met. However, these arrangements come with the higher fees and risk of failed payments associated with credit card processing.
When to use a standing order vs. recurring payment
Standing orders are an example of a recurring payment. How do they stack up against direct debit and recurring card payments?
Benefits of standing orders include the following:
They’re simple to set up because they are arranged by the customer.
They’re useful for regular, fixed amounts like monthly charity donations, magazine subscriptions, and rent or mortgage payments.
They’re usually free of charge for both payer and recipient.
However, these aren’t always the best option for business transactions. Standing orders don’t offer any payment notifications, which means there’s often a significant time lag before you find out a payment has failed or was cancelled. There’s also less flexibility in comparison to direct debits, along with less control over payment amounts and timings for the business.
GoCardless makes recurring payments easy with our ACH direct debit solution. Your business stays in control of the timing and frequency of payments, collecting 97.3% of payments the first time. For the small percentage that slip through the cracks, our Success+ tool uses payment intelligence to collect them the second time around. This reduces the total cost of collecting recurring payments by up to 56%. Manage subscriptions, invoices, and more all from a central platform that saves time and money.
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.