With 85% of small and medium sized businesses in the UK experiencing late payments in the last two years and 60% of businesses blaming cashflow problems on late payments, more and more organisations are looking for a way to make sure their customers pay on time.
Thankfully, there are two options which let you do this without spending all your time chasing them - standing order and Direct Debit.
A standing order is an instruction from your customer to their bank to pay you a specified amount at regular intervals - be it weekly, monthly, quarterly or yearly.
With Direct Debit, your customer authorises you to collect money directly from their bank account whenever a payment is due.
Both of these payment methods accomplish broadly the same thing – letting you collect money from a customer’s account on a set date, however, there are some subtle but important differences which may make one more suited to you than the other. But how can you know which option is right for you? To help you decide we've come up with three quick questions.
Standing Order or Direct Debit?
1. How many customers do you have?
A. Less than 25. If you have less than 25 customers, standing order may be a feasible option for you. Standing orders are particularly good for smaller organisations or clubs with close relationships with their members.
B. More than 25. If you have more than 25 customers to keep track of Direct Debit is probably the option for you. With a standing order you won’t know whether a payment has been set up or if a payment has failed without checking your bank account each time a payment is due. On the other hand, with Direct Debit you set up the payments so you'll know that everything's in place. What's more, any failures will be reported to you straight away meaning you know when you have and haven’t been paid without needing to trawl through your accounts.
2. Do you trust your customers to set up and make their payments on time?
A. Yes. If you have less than 25 customers who you can trust to set up the standing order and continue to make the payments when you’ve asked them to this could be a great option for you as your customer does all the hard work for you.
B. No. If you aren’t sure whether you can trust your customers to set up/ maintain a standing order then Direct Debit is probably the option for you. With a standing order, your customer controls the payment – this means you won’t know whether your customer has set up the payment or if a payment has failed without manually checking your accounts to see if the payment has been received.
3. What types of payments are you taking?
A. Regular, fixed payments. Both standing orders and Direct Debit can be used for regular, fixed payments.
B. Variable payments. While standing order can be great for regular fixed payments like rent, it isn’t 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. One of the greatest benefits of Direct Debit is its flexibility. You are in control 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.
C. One off payments. If you’re making a one off payment you could use standing order or Direct Debit – even though neither of them are typically thought of as one off payment methods. However, similarly to with regular payments, Direct Debit means you control the payment so you know that the payment has been set up and when you’ll receive it so there’s no chance of a customer forgetting to set up their standing order or setting it up on the wrong date.
If you've answered all As then collecting payments via standing order may be a feasible option for you. If, on the other hand, you've got at least one B, Direct Debit is probably the right choice for you.
If you're still not sure or you'd like to find out more about the differences between Standing Orders and Direct Debit check out our beginner's guide to Standing Order vs Direct Debit.‹ View all tips