Managing regular payments is crucial for businesses. When it comes to automating regular payments, Standing Orders and Direct Debits are two popular methods that businesses can choose from. While both enable automatic transfers from a customer’s bank account, they operate differently and offer unique advantages depending on your business needs.
To get a sense of the differences between these two payment methods, when to use each one, and how using Mono Direct Debit can make the recurring payment experience easier and more reliable for your business, dive in here.
What is a Standing Order?
A Standing Order is a payment method that requires the customer to instruct their bank to automatically make regular payments of a fixed amount to another account. The customer is in full control of setting it up and managing it directly through their bank. Once initiated, the bank processes the payments at specific intervals, such as monthly or annually, until the customer cancels or changes the standing order.
Key Features of a Standing Order
Customer-initiated: The customer is responsible for setting it up with their bank.
Fixed payment amounts: They are usually best for payments that stay the same, like rent or subscriptions.
Full customer control: The customer can adjust or cancel the standing order at any time, without requiring approval from the recipient.
What is Direct Debit?
Direct Debit is a flexible payment method where a customer authorizes a business to collect money directly from their bank account. Once the customer provides this authorization through a Direct Debit mandate, the business can then collect fixed or variable payment amounts without needing further approval from the customer.
Unlike a standing order, where the customer manages the payments, Direct Debit gives the business more flexibility to make changes to the payment agreement as required, making it a more convenient option for recurring payments.
Key Features of Direct Debit
Business-initiated: Payments are set up and managed by the business and authorized by the customer.
Flexible payment amounts: Direct Debit can be used for both fixed payments (e.g., subscriptions) and variable payments (e.g., utility bills).
Business control: The business can adjust payment schedules or amounts, provided they inform the customer in advance.
Standing Order vs. Direct Debit
Here’s a side-by-side comparison between Standing Order and Direct Debit:
| Standing Order | Direct Debit | |
|---|---|---|
| How is it set up? | The customer sets it up through their bank. | The business sets it up, usually online or in-person, and requires the customer to authorizes the direct debit mandate. |
| What is it used for? | They are used for fixed, regular payments like rent or subscriptions. | They are used for flexible payments, where amounts or schedules may change, like utility bills or loan repayments. |
| Who initiates it? | The customer instructs their bank to make payments. | The business initiate the direct debit mandate and requests authorization from the customer. |
| Who controls it? | The customer controls the setup and can change or cancel it at any time. | The business can make changes to the payment amount and frequency, however they would need to notify the customer in advance. |
| How flexible is this method? | Payments are for a fixed amount only, and any changes must be made by the customer. | Payments can be fixed or variable. The business can also adjust payment terms without needing re-authorization, as long as they notify the customer. |
| Can you process refunds? | Refunds can't be requested once payments are made. | Customers can request refunds for unauthorised or erroneously debited payments. |
Choosing between Standing Order and Direct Debit for your business
The choice between Standing Order and Direct Debit depends on your business needs and the type of payments you collect. If your payments are recurring, whether fixed or variable, Direct Debit is often the better option. It allows businesses to collect payments directly from the customer’s account, reducing the chances of failed payments.
On the other hand, if you collect fixed payments at regular intervals, Standing Orders may be a good fit. However, since the customer controls the payment process, there’s a higher risk of missed or late payments, and no automatic system to notify you if something goes wrong.
When should you use Standing Order?
While Direct Debit is usually the better option for businesses, there are specific cases where Standing Orders might be a better fit:
Small, fixed payments: If you have a small customer base that makes fixed, recurring payments like rent, a standing order may be a simple and effective solution for your business.
Trusted customer relationships: If you trust your customers and prefer to give them full control over the payment schedules and amounts, a standing order can work well. This means that customers would set up the payments and manage any changes directly with their bank.
However, for larger businesses, using Standing Orders could make the recurring payment experience too cumbersome, since the business needs to monitor whether customers have set up the payment or made any changes to it, so they don't have to deal with failed or delayed payments.
When should you use Direct Debit?
Direct Debit is ideal for businesses that:
Handle many customers: Managing standing orders with a large number of customers can quickly become unmanageable. Direct Debit is more scalable and allows businesses to automatically initiate direct debit mandates on customers' accounts and collect varying payment amounts.
Need payment flexibility: If your payment amounts or schedules change frequently, Direct Debit offers the flexibility to adjust these without needing customers to take action.
Want lower payment failures: Direct Debit has significantly lower failure rates than standing orders, as customers don't need to fully handle the setup process, and if a payment fails, businesses are notified on time, allowing for quick action.
Benefits of using Direct Debit
While both payment methods are beneficial, Direct Debit offers several key advantages that make it the better choice for many businesses:
Flexibility in payment amounts: Unlike Standing Orders, which are limited to fixed amounts, Direct Debit allows businesses to collect varying amounts. This makes it ideal for utility, insurance, lending, or subscription services where amounts may change each billing period.
Higher payment success rates: Since bank accounts don’t expire like cards, Direct Debit offers a higher likelihood of successful transactions, reducing failed payments caused by expired cards or incorrect details.
Cost-effectiveness: Direct Debit often offers lower transaction fees compared to card payments. This is because funds are transferred directly from the customer’s account to the business, making it a more affordable option for handling high transaction volumes.
Automated payment process: Once a Direct Debit mandate is set up, the payment process becomes fully automated. This reduces manual intervention, allowing businesses to focus on other operations while ensuring payments are collected on time.
Enhanced security: Direct Debit is a secure method of collecting recurring payments, and the risk of unauthorized setup is low, compared to other payment methods. This is because customers must prove account ownership and both the customer and their bank must approve the mandate before any payment is processed. Customers can also request refunds for unauthorized debits, increasing trust in the payment process.
Simplify recurring payments collection with Mono Direct Debit
Managing recurring payments can be complex, especially when dealing with varying amounts or schedules. For businesses in Nigeria, finding an efficient way to handle these payments is key to maintaining smooth operations. Mono Direct Debit offers a solution that not only simplifies the process but also ensures reliability and flexibility. Whether you're looking to collect fixed or variable payments, Mono Direct Debit helps streamline your payment collection, making the process more efficient and hassle-free.
Mono Direct Debit offers some unique advantages like:
Flexible mandate setup: You can collect variable or fixed payments across multiple customers’ accounts (personal, business, or joint accounts) and different mandate authorization methods.
Robust bank coverage: With access to over 20 financial institutions in Nigeria, Mono makes it easy to collect automated recurring payments from your customers, no matter what bank they use.
Affordable transaction fees: Mono Direct Debit charges just 1% per transaction, with a maximum fee of NGN1,000 for every successful direct debit payment, making it a more affordable alternative to other payment methods like cards.
Easy setup: With Mono Direct Debit, setting up payment mandates is quick and flexible. The Mono Direct Debit API is easy to integrate, making the set-up process straightforward and efficient. For businesses without technical teams or those looking to digitize physically approved mandates (paperwork mandates), mandates can easily be created using the No-code Mandate feature, which allows you to automate payment collections with minimal setup time.
Reliable payment collections: The Mono Direct Debit smart retrial system reduces failed payments by automatically retrying unsuccessful transactions when they occur.
When deciding between Standing Orders and Direct Debit, Direct Debit offers greater flexibility, security, and convenience—especially for businesses handling variable recurring payments. By leveraging Mono Direct Debit, your business can collect payments seamlessly, ensure better cash flow management and provide customers with a more reliable and secure way to pay you on a recurring basis.
Ready to simplify your recurring payments experience? Sign up on Mono today and explore our detailed integration guides to get started.
