At first glance, Direct Debit and standing orders may seem like one and the same. When Auto Debit comes into the picture however, it becomes even more confusing for the unfamiliar.
In this article, we shed light on Direct Debit vs standing orders along with all its differences, benefits and disadvantages. If you’re still stumped by Direct Debit and Auto Debit however, our recent article here delves into the comparison between the two, from estimated reach to failure rates.
Direct Debit is an automatic payment method that allows a business to pull payments directly from their customers’ bank account. Yes, that’s right - of any amount, of any frequency, on any date. Needless to say, it requires the prior authorization of the customer beforehand.
Such convenience and flexibility is made possible via a one-time online form (eMandate) which the customer fills out. This gives permission for the business to debit directly from their customer's bank account.
While not the most commercial payment method in Malaysia for the past few decades at least, initiatives by Bank Negara and SME’s such as Curlec in driving Malaysia towards the direction of greater economic efficiency via electronic payments has since seen Direct Debit becoming an encouraging trend in the financial sector.
What is a standing order?
Sometimes termed as a standing instruction, standing orders are an order a customer gives to their bank to make fixed regular payments to another account or third party.
The customer is required to be present in person at their bank to set up the standing order. The manual process is traditionally a lengthy one involving queues, forms and signatures galore. Though this still exists today, online banking has enabled customers to set up standing orders from the convenience of their own home or mobile device.
However, what this means for you as a customer is that the responsibility of setting up the payment is entirely in your hands. While business owners on the other hand, will not have the ability to manage the payment particulars such as amount, date and frequency of collection.
It’s all in the name, really.
Direct Debit = An authorization from a customer to a business to debit directly from their bank account. (Either on a fixed or regular basis)
Standing Order = An order from a customer to their bank to make payments of a standing amount and frequency to a business.
Distinguishing the key differences.
Should I Use Direct Debit or Standing Orders?
The flexibility of Direct Debit and the familiarity of standing orders boils down to a few major questions you should ask yourself when considering the direct debit and standing order difference.
1. What kind of payments are my customers making?
For fixed payments such as property rental and education fees, standing orders can be an easy, hands-off way to settle monthly bills.
Payments which may vary in amount and collection date such as utilities and membership fees however, can benefit from the flexibility of direct debit, which allows the business owner to customise the payment particulars after obtaining authorisation from the customer.
2. How much admin can I afford to do?
Direct Debit requires little admin as all processes are automated. Business owners only need to get hands on during the one-time eMandate set up.
Since standing orders rely heavily on the customer to kickstart the procedure, chasing after forgetful customers can become the norm. A nightmare scenario maybe? Investing all that time and effort selling to the customer, only for them to change their mind on their way to the bank.
Even worse, standing orders may not always be accompanied by the correct reference number so businesses may end up erroneously chasing for payments that have already been made!
3. How big is my customer base?
Direct Debit is suitable for any size of a customer base as its one-time online set up ensures anyone can set up a Direct Debit anywhere.
Standing orders are typically suited for smaller scale businesses or organisations due to its tedious set up requiring the customer to make a visit in person to the bank. As an added hassle for standing orders, the business will have to frequently check its bank account to view the status of a collection. And did we mention all the paperwork?
Direct Debit in Malaysia?
Curlec is the pioneer Direct Debit company in Malaysia. If flexibility and convenience is what you’re looking for, get in touch with us here to find out how Direct Debit can be one of the key transformative tools for your business!