Direct debits and standing orders explained

What is a standing order?

A standing order is a regular payment which you instruct your bank to make.

The easiest way to do this is via online or mobile banking but you may also be able to set these up in your local branch or over the phone.

Standing orders are typically used for rent payments, monthly charity donations, and regular payments into a savings account.

A standing order amount will remain the same, unless you amend your instruction.

With standing order payments the money is transferred through the Faster Payments Service, and will be processed on the same day.

Standing orders can be simpler than direct debits, mainly because the business is not involved in claiming payments from you, but offer less consumer protection.

At set times, your bank just sends the money into the beneficiary's bank account and only you can alter the payments. The beneficiary can be anyone.

What is a direct debit?

Whereas you set up a standing order yourself, a direct debit is set up by a company, using your sort code and account number.

When you sign a direct debit form or mandate, you give that company permission to take a certain amount each month.

Direct debits are often used for mortgage, phone, energy or gas bills..

The main advantage of direct debits is the flexibility, as the payments can vary in amount or frequency. The variable nature means that organisations or individuals can claim different amounts at different times.

Its usually better to pay by direct debit as it gives you more consumer protection.

Is a standing order or direct debit better for making regular payments?

• Standing orders can be simpler than direct debits, mainly because the business is not involved in claiming payments.
• You can edit or cancel a standing order whenever you like. Do this at least three working days before the payment is due.
• You aren't protected if a standing order payment goes out in error so make sure you have the correct information.
• One advantage of direct debits is the flexibility around the dates and amount of money billed.
• Direct debits also give you more consumer protection under the Direct Debit Guarantee.
• Your bank should refund disputed direct debits without question, pending further investigation.

Recurring card payments (continuous payment authority)

A recurring card payment – also known as a continuous payment authority (CPA) or future card payment – is set up by a company using your debit or credit card details, instead of your current account details.

For example, subscriptions for Amazon Prime, Netflix, Spotify and magazines take card payment details for recurring payments eg once a month or annually.

Subscriptions can usually be changed or cancelled by contacting the company taking the payment, although your card provider must cancel these payments if you ask them to. If further payments are taken by mistake after you've asked for a cancellation, your card provider must refund them.

If a company is refusing to cancel recurring payments because you signed a contract, you can still ask your bank to step in but if you are in breach of contract think carefully first as you will owe the company money.

Are direct debits safe?

Usually, you have to sign a direct debit form, although some companies are authorised to set up direct debits over the phone.

If that sounds a little risky, remember that the company must have obtained the bank account details from you and that you are protected by the Direct Debit Guarantee.

In order to be an approved company, the beneficiaries of direct debits are subjected to careful vetting procedures and, once approved, they're required to give indemnity guarantees through their banks.

The Direct Debit Guarantee applies to all banks and building societies taking part in the direct debit scheme. It states that your bank should refund disputed payments without question, pending further investigation. It says that:

• if there is a change in the amount to be paid on the payment date, the person receiving the payment (the originator) must notify you in advance
• if the originator or the bank/building society makes an error, then you are guaranteed a full and immediate refund of the amount paid
• you can cancel a direct debit at any time by contacting your bank or building society. Written confirmation may be required. You should also notify the organisation. 

How do you cancel a direct debit or standing order?

1. Write to your bank

You can cancel a standing order or direct debit at any point in your branch, over the phone or via secure online banking.

But, it's always best to confirm your instruction in writing via a letter or email so that you have a record of it.

Use our template letter to cancel a direct debit with your bank.

2. Inform the recipient

Make sure you inform the person or company in receipt of the payment before you cancel it, as you could incur fees or penalties for non-payment.

Also, it's worth checking the terms and conditions of the business that you're dealing with, just in case you're still within the fixed term period of the contract, or in case a notice period has to be given.

3. Arrange alternative payments

Be aware that if you don't pay a bill on time, this could affect your credit rating and will appear on your credit file.

Always confirm your cancellation in writing or email and be sure to make alternative arrangements for payment so as not to adversely affect your credit rating.

Our guide explains how to check your credit report and why it's so important.

4. Check your statements

As with all standing orders or direct debits, once you've cancelled always take care to check subsequent bank statements to ensure your instructions have been followed.

That way any error will be identified immediately and steps can be taken quickly to secure a refund.

How can I dispute a direct debit?

If you've cancelled a direct debit and the money has still been taken from your bank account, contact your bank or building society.

It doesn't matter whether you owe money to the company in question or not – if you cancel a direct debit, your bank should ensure that no payments are taken.

Under the Direct Debit Guarantee disputed payments must be refunded by your bank without question, pending further investigation.

• Find out more: what to do if money has been taken from a cancelled direct debit