Many people have both standing orders and direct debits set up without understand the difference.

Both are instructions to your bank to make payments, usually on a regular basis, to a third party.

Standing order

A standing order is a regular payment (usually monthly, but it could be weekly, quarterly or annually) of a fixed amount that you can make to other individuals, organizations or your other bank accounts.

It can be amended or canceled as and when you like. The sum cannot change unless you cancel the existing instruction and set up a new one.

The process is usually free, although some banks may charge.

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Direct debit

A direct debit is an authorization or mandate that you give so an organization or retailer can claim money from your bank account, giving advance notice of collection times and the amount – which can vary. [Related: Story | When are we going to benefit from direct debit?]

This means a direct debit is more flexible for paying bills such as utilities or a mobile phone plan, which can vary each month; a standing order has to be for exactly the same amount each time.

Direct debits are cheaper for receiving organizations. It can work out better for the consumer too; in other countries, discounts are common for customers choosing to pay by direct debit, because payment is then instant and there is no waiting period.

Normally, retailers have to be vetted by banks before they can become approved originators of direct debits, making it a secure system.