Last editedMar 20227 min read
Businesses who collect regular payments, including subscriptions and instalment payments, can do so via standing orders, though there are some drawbacks.
In this guide, we’ll explain exactly how standing orders work, present the advantages (and disadvantages), and look at the alternatives.
What is a standing order?
A standing order is an automated method of making payments, where a person or business instructs their bank to pay another person or business a fixed amount of money at regular (fixed) intervals. The payer controls the standing order; they set it up themselves, and choose the amount and frequency. Standing orders are created to cover a set period of time (e.g. every month for a year), or until they are cancelled.
Any person or company with a current account can set up a standing order, either online, over the phone or at in person at a branch of their bank.
A standing order is different to a Direct Debit payment. A standing order is essentially an instruction from the payer to their bank, telling their bank to 'push' funds to another person or organisation. In contrast, when you set up a Direct Debit, the person or organisation receiving payment asks permission from the payer to 'pull' funds from their account on a recurring basis.
Some small businesses collect regular payments from customers by standing order. Receiving payment by standing order generally costs nothing, and, once the order is up and running, the business can rest assured that payments will be collecting automatically and on time. However, there are drawbacks: a customer can change or cancel the payment without notifying you, so you’ll have to rely on them to get this part right.
How does a standing order work?
The first step in setting up a standing order requires the payer to contact their bank to request it. With some banks and building societies, standing orders can be set up online or over the phone. The payer then completes a standing order form (paper or online) and gives it to their bank. This will include details of the account number and sort code of the person or organisation being paid.
Banks don’t usually charge anything to the payer or payee for setting up or using standing orders. It’s important to keep in mind that customers can cancel a standing order at any time, or change the amount or payment date. Standing orders are created to cover a set period of time (e.g. every month for a year) or until they are cancelled.
Standing orders: example use cases
People typically use standing orders for making regular payments, such as:
Monthly charity donations
Making payments from a current account into a savings account
Standing orders are particularly useful for making regular payments from one individual to another, where Direct Debit would be a less straightforward option.
A good example of this would asking a tenant to set up a standing order to their landlord to avoid late rent payments. The amount would be the same each month and would be sent from the tenant’s bank account to the landlord’s at the same time each month, either until the specified length of time runs out or the tenant cancels the standing order via their bank.
What are the advantages of standing orders?
Usually free of charge for both payer and payee
Fairly quick for payer to set up
The payer gets to set the amount sent
The payer also gets to set how long the standing order is in place for
What are the disadvantages of standing orders?
No payment notifications - This means it could potentially take a payee weeks to find out that a payment had failed (either because the payer cancelled it, or because their account lacked the necessary funds to cover the payment amount). If this happens, the payee will need to chase the payer to set up payment all over again.
Less flexibility - Changing the amount or date of a payment requires the payer to cancel the standing order and create a new one.
Risk of late payment - Many businesses struggle to get customers to set up their standing order quickly, or to amend it as or when required. This brings back the risk of late payment, potentially causing cash flow problems for a business.
High admin - Businesses taking payments by standing order may end up constantly checking their bank to see if payment has arrived and manually updating accounts once it does. This is time and labour that could be better spent elsewhere.
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Standing orders for businesses
This section will guide you through the fine details of using standing orders, including when to use them, how to get access, set up, change and cancel them, their timings, and a useful comparison chart with other recurring payment methods. There’s even a handy quiz at the end, to help you decide if standing orders are right for your business.
When to use a standing order
For starters, think about how many customers you currently have. Standing orders are generally a good fit for small businesses, organisations or clubs with less than 25 customers, as a certain level of trust is helpful when using standing orders.
Secondly, think about whether you trust your customers to set up and make their payments on time. If yes, then standing order could be a good option for you, as your customer does all the hard work in setting it up.
And finally, deciding whether to use a standing order also depends on the types of payments you’re most commonly taking. If most of your customers pay by regular, fixed payments, then either standing order or Direct Debit can be used. It’s also possible to use either standing order or Direct Debit for taking one-off payments, although this is not how they’re typically used.
For variable payments, standing orders are less useful. They’re not great for paying bills with variable amounts or frequencies such as utility bills or credit card debts or in industries where you may want to increase fees or upgrade subscriptions easily.
Direct Debit is a better fit here, as it’s its highly flexible. You’re in control, rather than the customer, so you can adjust the amount or frequency of payments whenever you need to (as long as you give your customer the required advance notice).
Accessing and setting up standing orders
For you as a merchant, there’s very little action needed to get a standing order up and running. The customer does most of the heavy lifting. All you have to do is inform the customer of the payment amount and due date. They then need to handle the access and set up process via their usual bank.
Changes, cancellations and refunds
Once again, you’ll have to rely on your customer to change the amount or date of a payment. To do this, your customer will need to cancel the standing order and then create a new one.
In the case of refunds, once the standing order leaves the customer’s bank account, they can no longer stop it. If they request a refund from you, the terms of your contract will dictate whether or not this happens.
Standing orders don’t offer a customer protection guarantee like Direct Debit does. If, for any reason, customers decide to cancel a standing order before the agreed end point is reached, they’ll need to inform you. They risk incurring fees or penalties for non-payment, which could affect their credit rating and appear on their credit file. That’s why we only recommend using standing orders with customers who you trust.
Standing order payment timings
If your customer’s bank uses Faster Payments (which most now do), a standing order payment is likely to arrive in your account on the same day that the customer sends it.
But it’s important to note that if your regular payment is due to arrive on a non-working day (such as a weekend or bank holiday), the banks may process it on the next working day. If the customer’s bank doesn’t use Faster Payments, it takes three working days for a standing order payment to move from one bank account to another. Learn more about standing order timings here.
Unfortunately, there’s no notification function available for incoming standing order payments, so you’ll have to keep checking your account to see if the payment has arrived.
Whenever your customer sets up a standing order, they must make sure they use the correct sort code and account number for your business account. Incorrect details can cause their money to end up in someone else’s account, which can be tricky to retrieve!
Customers using standing orders do have a certain level of consumer protection. For example, if someone makes a fraudulent standing order from their account, then the bank must issue an immediate refund once they are informed of the problem.
That refund claim must be made within 13 months of the fraudulent transaction leaving the customer’s bank account. Your customer must authorise each standing order payment in advance, and their bank must help them trace any funds that go astray. It’s important to note that banks aren’t liable for helping people retrieve money that’s been lost.
Standing order alternatives compared
|Standing order||Direct Debit||Credit or debit card||Cash or cheque|
|Set up||No provider needed. Customer controls set up. You depend on them.||Bank/provider needed. You control setup, payment amount and date.||Provider needed. You’ll need to set up a merchant account.||None|
|Cost||Free (for both customer and business).||Typically low. Depends on provider. GoCardless charges 1% +20p per domestic transaction.||High. Typically 2-3% per payment, plus monthly fees for merchant account.||Free|
|Failure rates||Low. Failure rates vary by industry. No notifications if payment fails.||Very low. Less than 1% with GoCardless. Automatic notification informs you immediately of failures. You can then re-submit payment.||High. Failed payment rates typically >5% due to card expiration, cancellation or customers hitting spending limits.||Not applicable|
|Flexibility||Low. Fixed payments at regular intervals only. Amending amount or date requires customer to cancel standing order and set up a new one.||High. You can collect variable amounts, change payment amount or date without any further authorisation.||High. You can collect variable amounts, change payment amount or date without any further authorisation.||Low. You rely on the customer to make a payment, which can involve chasing.|
|Late payment risk||Medium. Once set up, low risk, but can be tricky to get customers to set up standing orders quickly, or to amend when required.||Low. You can automatically charge customers whenever payment is due.||Low. You can automatically charge customers’ cards whenever payment is due.||High. Not automated and customer has full control.|
|Admin||High. Check bank statement daily to see what payments have been made. No notification when a payment fails. Manually update your accounts||Low. Automatically submit multiple payments at once. Automatically update your accounts. Instant notifications when payments fail. Easily track payments without checking bank statements.||Low. Once payment is set up, there’s nothing more to do.||High. All manual processes means a lot of admin time for your business.|
|Customer protection||Low. No customer protection once payments are made. But greater protection for merchants.||High. Immediate refund from customer’s bank in the event of an incorrect payment, under the Direct Debit guarantee.||Medium (for credit cards only). Under section 75 of the new Consumer Credit Act, credit cards must provide protection for purchases above £100 and below £30,000.||None.|
Still not sure? Take our quick quiz to decide if standing orders are right for your business.
Standing orders for customers (payers)
Customers like certainty and control, which standing orders provide. In this section, we’ll look at paying by standing orders from the customer’s perspective, including how to use them, what happens if they bounce, and whether they can be refunded. We’ll also provide a quick-reference comparison of different recurring payment methods.
What can I pay for with a standing order?
If you’re new to standing orders, you’ll find a whole host of things you can use them for. Common examples include:
paying off credit card bills
making payments from your current account into a savings account or premium bonds
paying bills with fixed amounts
paying business expenses and overheads
paying monthly rent payment
paying for subscriptions e.g. magazines, food boxes or software.
These all tend to be recurring payments for the same amount at the same time (for example, monthly).
How do I set up a standing order?
From the customer’s point of view, one of the major attractions of standing orders is the level of control they offer. As the customer, you are the only person who can cancel a standing order. You can do so at any time, either in branch, over the phone or via online banking. The payment will be stopped immediately, and no further payment will be taken unless you reinstate the standing order. Only you can do this. But it’s important to inform the person or company who would receive the payment. Non-payment of owed payments could result in fees or penalties. What’s more, if you don’t pay your bills on time, it could affect your credit rating.
Can standing order payments be refunded?
A standing order payment is similar to a cash or cheque payment as you can only get a refund if the person you’ve paid agrees to it. But if the standing order has been set up and taken from your account fraudulently (i.e. without your authorisation) then your bank is obliged to refund you. It must do this by the end of the business day on which it is informed of the fraud, according to the Financial Conduct Authority.
Can a standing order payment bounce?
A standing order payment will bounce if there isn't enough money in your account to cover it. This can cause your bank to charge you hefty fees for going into an unauthorised overdraft. To avoid this happening, we recommend setting up a small interest-free overdraft to act as a ‘buffer zone’. Having this in place means your bank won’t charge you if a standing order drops your balance below zero. As well as considering the temporary overdraft option, you could also contact the person who will receive the payment to ask if they’ll accept a later payment date.
If your standing order fails due to lack of money in your account, some banks have a retry feature that will automatically try to send the money again. When this is the case, you may have a window to transfer funds to your account before the retry, but you should check with your bank or building society.
How long does a standing order payment stay active?
When setting up a new standing order with your bank, you’ll have the option to specify a duration for the recurring payments. This can be monthly, weekly, or whatever you prefer. If you set an end date, the standing order will stay active until that date, or until you cancel it manually via your bank (which you can do at any time).
Standing order templates and forms
To give you a better idea of what typical standing order forms look like, here are some useful links for a selection of UK banks. Most banks also offer quick and easy setup via their online banking platforms.