Last editedFeb 20232 min read
Businesses who collect customer payments on a recurring basis, including through subscriptions, can do so via standing orders.
Standing orders are part of the banking systems in the UK, Ireland, Germany and India, among others. As a US-based business, you only need to know about standing orders if you receive payments from customers based in countries that use standing orders, and if you offer this as payment option to your international customers.
In this guide, we’ll explain what standing orders are, take you through some of the benefits (and drawbacks), and look at how it compares to Direct Debit.
What is a standing order?
A standing order is a method of payment whereby a person or business sets up automated payment of a fixed amount to be sent at fixed and regular intervals to a recipient. The payer is in control of the standing order, determining the amount and frequency of the payment. Usually, standing payments will continue until they are cancelled.
Some small businesses collect recurring payments from customers by standing order. This is cost-effective from a business point of view, and businesses can relax knowing that the payment will arrive on time at every interval.
However, as the customer is in full control of the payment, they can cancel or change the payment amount/frequency at any moment without letting the payee know. So for it to be a reliable payment method, you need trustworthy customers.
Standing order benefits
Usually costs nothing for both payer and payee.
Fairly quick and easy for payers to set up, and can often be set up online or over the phone. For businesses, this can help increase customer satisfaction.
Payer is in control of the amount sent. This can be an advantage to businesses with customers who prefer to initiate payments and are wary of pull-based payments.
The payer is in control of how long the standing order is in place for. Again this can be a benefit to businesses that want to cater to customers who value being in full control of their payments.
Standing order disadvantages
There are no payment notifications. This means it can take a while for businesses to discover that the customer payment has failed (due to cancellation or insufficient funds). If this happens, businesses have to chase up customers to re-set up the standing order or pay via another method.
Businesses have no control over payment date, frequency or amount.
Can lead to late payments. Businesses often struggle to get customers to set up their standing order promptly, or to change it when needed. This can lead to late payments, which causes cash flow problems for businesses.
It is administratively demanding as businesses have to frequently check with their bank to see if the payment has arrived, then manually update their accounts when it does. Compared to other payment methods, this is arduous and time consuming.
Standing order vs Direct Debit
Unlike standing orders, which are controlled by the customer, Direct Debit payments are pull-based, meaning they are initiated by the merchant. This offers several benefits:
Improved cash flow - As merchants are in control of customer payments, there is a lower risk of late payments. This results in healthier cash flow and more accurate cash flow predictions.
Less admin - the whole direct debit process can be automated, leading to less admin compared to standing orders.
More flexible - With standing orders, the amount and frequency of payment cannot be easily changed. With Direct Debit, the merchant is in control of varying payments when required. This makes it a much more flexible payment method.
ACH Debit payment with GoCardless
ACH Debit functions in much the same way as Direct Debit, allowing businesses to collect payments directly from customer bank accounts.
GoCardless is an online ACH debit specialist that can facilitate the payment collection process on behalf of your business.
With GoCardless, you can manage your payments using a simple online tool, or integrate with the GoCardless REST API. Your customers will be able to set up ACH Debit payments online, so there’s no need to complete tedious paper authorization forms. As soon as an authorization is in place, you can collect one-off or recurring payments from customers automatically.
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.