Definition of Direct Debit
Direct Debit is an automatic payment system, in which you can authorize your customer (institution/organization) to withdraw money from your bank account, as and when the payment becomes due. But, the organization ought to give prior notice regarding the timing and amounts of withdrawals. The bank account holder instructs the bank to straight away honor the payment request received from specified payee.
In this system, the payee can withdraw any sum at any point in time. The payee is having ultimate control over the payments to decide the amount and time for payment without taking further authorization from the payer. The payer will not have any control over the withdrawals, but he can cancel them anytime and need not mention any reason for that. The Direct Debit System notifies the payee for cancellations or failures in payment if any.
Example – Gas Bill, Electricity Bill, Mobile Bills, etc.
Definition of Standing Order
Standing Order is a facility provided by the banks, in which you can instruct the bank to transfer a specified sum from your bank account at regular intervals. It is also known as Standing Instruction or Banker’s order. In this system of regular payments, the payer the right to set up or change or cancel the payments without previously notifying the payee.
This system is mainly used to initiate payments that fall due on fixed intervals, and their amount is also certain. However, it is also the drawback of standing order that the amount is set, and so if there is a little bit of change in the amount, you need to cancel the old one and make a fresh account. This ultimately increases the administration cost.
Example – Rent, Insurance premium, Subscriptions, Equated Monthly Installments (EMI), etc.
| BASIS FOR COMPARISON | DIRECT DEBIT | STANDING ORDER |
|---|---|---|
| Meaning | Direct Debit is a system of payment in which the bank account holder can authorize the customer to withdraw the due amount, directly from his bank account. | Standing Order is an instruction given by the bank account holder to the bank to pay a specified sum at periodic intervals to another person’s account. |
| Control over payments | Payee | Payer |
| Transaction Amount | May vary | Remains fixed |
| Frequency of payments | Can be changed | Specific |
| Administration Fee | Low | Comparatively high |
| Nature | Complex | Simple |
| Speed | Fast | Comparatively slow |
| Notification of cancellation or failure to the payee | Automatic notifications | No such notification |
