What is a Standing Order?
Please note that this article is intended for educational purposes only and should not be deemed to be or used as legal, employment, or health & safety advice. For guidance or advice specific to your business, consult with a qualified professional.
A standing order is an instruction from one bank to another to pay a fixed amount on behalf of a business or an individual each time the payment falls due.
It’s a convenient, inexpensive and automated way to collect regular payments from your customers or send them to your suppliers.
When to use a standing order
If you run a subscription service or make a fixed amount of repeat sales, a standing order makes sense as a way to accept payment. Once set up, it’s automated, and you know each month how much cash is going to land in your business bank account. You can also use payment software to manage recurring payments.
In addition to receiving money from customers, you can use standing orders to pay your own regular invoices. For example, you might use it to pay rent or utilities, or to put money into a savings account.
How to set up a standing order
The payer authorises it, so if you have a customer making regular payments to you, they need to contact their bank to organise their standing order payment. It also means they can cancel it at any time without giving you notice, which can cause a headache in managing cash flow.
Similarly, you’re responsible for setting up your standing orders. Traditionally you’d visit your local bank branch, but banking has evolved and you can set up an order using telephone banking or via a banking app.
Give your own account details – sort code and account number – plus the amount, when the first payment is to be made, the frequency of payments and the recipient’s bank details.
If you want a customer to pay you by standing order, provide them with your current account details, as well as the amount they need to pay.
What happens when a standing order isn’t paid
A standing order isn’t paid if there’s not enough money in the account or if the order has expired. The consequences of that depend on the attitude of the organisation receiving the money.
If you’re the customer, you could be subject to late payment fees or an interruption of service. It could also damage your credit rating and relationship with your suppliers.
If you’re expecting money and it doesn’t arrive, it can affect your cash flow. You can choose to impose penalties on your customer for failing to pay on time. Sometimes it may mean an invoice is never paid, in which case, chase the client for payment or write it off as a loss.
How to cancel a standing order
Cancelling an order is as easy as it is to set one up – give your bank permission to cancel, and they do the rest. If you use online banking all you need to do is log in and hit the cancel button.
You don’t need to tell the recipient you’ve cancelled, although it’s good practice and polite to do so. Otherwise, as a business, sometimes the first inkling you have that a customer has cancelled is when the money fails to materialise, so it can be quite irritating.
Frequently asked questions
Are a standing order and direct debit the same?
No, a standing order is an instruction from the payer to send money, whereas a direct debit is a request from the receiver to be sent the money owed.
What does a standing order mean?
It’s an instruction to a bank from an account-holder to send money to another individual or an organisation.
How do I set up a standing order?
Either in person at a bank branch, via telephone banking or through a banking app. Setting up a standing order online is straightforward and saves time.
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