What Is A Standing Order? All You Need To Know

A standing order is when you as a bank account holder instruct your bank to pay an exact or set amount to another bank account at regular set times.

For example, you can instruct your bank to make a payment of $500 as rent to your landlord’s bank account on the 27th of every month.

In setting up the standing order you can also specify the duration of the standing order to match your tenancy agreements.

This is really important as there is always important as the bank will continue to pay the standing order until you cancel it.

I have been in such a situation before where I ended up overpaying someone as I forgot to cancel my standing order.

As shown in the example above, most bank account holders use it to pay for regular fixed payments such as rent. Other fixed payments you can make are things like mortgages and transfers to your savings account.

what is a standing order

What Is The Difference Between A Standing Order and a Direct Debit?

The difference between a standing order and a direct debit is that with a direct debit you give a company permission to take out payments from your bank account on an agreed date.

Whereas in the case of a standing order it is you the bank holder instructing the bank to pay a set amount to another bank account.

A direct debit is used to pay for such things as electricity and water bills.

What Are The Advantages of Standing Order?

Standing orders many advantage and they include the following.

  • The perfect tool for recurring payments. Recurring payments include rent, mortgage, savings, etc. The best way to make sure that you don’t miss these payments is to just set up a standing order. Then money will just be coming out of your bank without your intervention. You will, therefore, avoid defaulting on your important payments like rent.
  • It is free. Most banks will not charge for setting it or for processing these payments.
  • Easy to Set Up Easy To Cancel. There is nothing complicated about setting up a standing order even for someone who is technically challenged. And if you are technically challenged you still have the option of visiting your bank or sending the instructions by post.
  • You have Control of What Comes Out of Your Current Account. Unlike other tools such as Direct Debits, the current bank account holder has control over the amounts to come out of the bank. Unlike Direct Debits where a third party can take whatever amount you owe them.
  • Good For The Payees As They get Their Payments On Time. Second, only to a Direct Debit, a standing order is a good thing for most businesses as they know they will get their payment on time.

What Are the Disadvantages of A Standing Order?

Below are some of the disadvantages of a standing order.

  • You may forget to cancel a standing order and end making a payment you don’t need to. This is a headache that has happened to me as an individual and as an accountant. There have been at least three times when I have noticed that I failed to cancel a standing order and payments went through.
  • Not many businesses like to be paid by standing orders, they prefer direct debits where they have control. In the case of a standing order, it is the payer who has control.
  • Lack of Notification: If a payment does not go through you may not be notified and end up assuming that everything is fine when it is not. This could end up costing you money for default charges.

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Do You Get Charged For a Standing Order?

No banks do not charge for setting up a standing order. Nor do they charge you when you pay. You however need to confirm this with your bank.

How Do I Stop a Standing Order?

You can stop a standing order by canceling it with your bank. You can do this by writing your bank instructing them to cancel it or you can do it online.

You just need to make sure that you do it at least 3 working days before the payment date. Otherwise, that payment may still go through as banks need a sufficient notice period.

How Long Does A Standing Order Take To Set Up?

If you sent a standing order form to a bank, It should normally take on average two working days for the bank to set up a standing order mandate.

This is from the time they receive the instruction to set it up to when it should be on the system.

If however, you are doing it online then it should take even less to take effect. However, this depends on the bank.

This means that if you set up a standing order give yourself at least a day before the first payment occurs.

However to be very sure I would give the bank at least a week before the first payment is made.

Can I Set Up a Standing Order Over The Phone?

Yes, a bank account holder can set up a standing order over the phone. In doing this make sure that you have all the information the bank needs for security clearance. For example, my bank has a security PIN for all transactions over the phone.

Also, make sure that you have all the details about your account handy. I remember calling my bank and discovering that I did not have my bank account number with me. So have all this before making the phone call.

You can also set up your standing online for most banks that have an online banking option.

In some cases, you can even use your bank phone app to create a standing order. Not long ago some banks only allowed it on their websites.

Another way to set up a standing order is simply to visit a branch of your bank.

What Happens If a Standing Order Fails?

If a standing order fails because there was not enough money in your account, the bank will charge you a penalty fee.

You, therefore, need to make sure that money is available in your account on the dates specified in your standing orders.

Another way to avoid this is to ask your bank to give you an overdraft limit. In that way you the bank will be able to pay any amount within that specified overdraft limit.