An Introductory Guide to Standing Orders

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Published: 11th December 2012
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Every year money management is becoming faster and more efficient – you no longer have to go through a waiting period that can last a few days if all you want to do is transfer some funds or pay a bill. The focus for money management is on making it easier for users to understand and arrange their funds. There are now a variety of methods that you can choose from when you need to make a payment. BACS, CHAPs and Faster Payments are some of the most commonly used methods currently. When it comes to choosing a recurring payment there is a choice between a ‘standing order’ and a direct debit. Both of these payment types can be particularly useful but should be used for different things. So what is a standing order and how does it differ from other similar payment methods on offer?

In simple terms, a standing order is an instruction that a customer gives to their bank. This ‘instruction’ will allow your bank to authorise a payment on a regular basis. This payment can be made to another individual or a business. Setting up a standing order is a very straightforward process that can be done in person, over the phone or online. You will, however, need certain key pieces of information about the person or business you are trying to pay. You will need to know their sort code, account number and the name of the account holder. You will need to make sure that the information you have is correct as one wrong number can mean that your funds are sent to the wrong person or account. These types of payments can be used for a variety of different things. Some of the most widely used purposes are for paying rent on a monthly basis, making charitable donations on a regular basis or paying council tax. You can also use an S.O. to regularly move money between your own bank accounts. For example, you may wish to put aside some money into a savings account every month – with a standing order you can easily set this up.

There are a few terms and conditions regarding S.Os. You need to be aware that if an S.O payment makes your account overdrawn you may be charged interest. Some banks do offer a temporary buffer for things like this but you need to be conscious of how much money is in your account and how much will be going out of it every month. If you are the victim of fraud, there will often be protection available to you. If someone sets up an unauthorised S.O payment from your account, consumer protection will usually provide an immediate refund. You do need to be mindful, however, that your claim is made within 13 months of the fraudulent activity happening. Also, in most cases the account holder wanting to set up a standing order will need to be either over 16 or over 18 depending on the bank. If you are younger than the required age it may be worth looking into a bank account aimed at younger people, as some do have the facility to set up an S.O.

Many people assume that a standing order and a direct debit are the same thing. Though the two payment methods are fairly similar in that they are both ways to set up a recurring payment, there are some key differences. With an S.O you are making instructions for money to be sent from your account to the payee, a direct debit is different in that it authorises the recipient to collect the money from your account. The payment amount for a direct debit can vary every month, for example you may pay £10 one month and then the next you may pay £100. With a standing order the payment amount will stay the same every month unless you change it. Unlike with a direct debit, this change of amount will need to be done from your end rather than from the beneficiary’s end. In most cases a direct debit is usually more appropriate if you want to pay a business, while a standing order is generally more useful for payments to individuals.

There are a number of advantages to using a standing order. The most obvious is the ease of money management, once the standing order is set up you no longer have to remember to make a payment every month – the standing order will do this automatically for you. There is also increased control in using an S.O, you can choose the date that the money goes out of your account and you are in charge of the amount that is being paid. A company that you are paying cannot increase the payment amount without your approval. You can also cancel the standing order yourself. With a standing order there is no need to stand in queues, waiting to make a payment in person at your local bank branch every month. You do not have to have large amounts of cash on your person and you can be sure that your bills and payments are made promptly and on time. In the vast majority of cases you should not have to pay a fee in order to set up or use a standing order. A standing order is a simple and fast way of making payments.

© Izzy Evans 2012

If you would like to find out more about the process of making payments by Standing Order, you can visit What is a Standing Order.

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