Both a standing order and a direct debit allow you to pay other people (be that individuals or companies), usually on a regular basis, through your bank. This is good for regular bills, such as rent or utilities. Although they look the same on a bank statement, they operate quite differently.

One way to remember how they are different is 'Push Me Pull You' - you will push the money towards the recipient for a standing order, but the recipient will pull the money towards themselves for a direct debit.

Standing Orders

A standing order is set up by you to send money to a specific account on a specific day. It usually takes three working days¹ for money to move between accounts, less if the recipient happens to be in the same bank as you. You can set up a standing order by completing a form from your bank², which will include the recipient's details and the date the money is to be taken from your account. Remember to allow for the three extra days if the money has to be with the recipient by a certain date. If there is a bank holiday the payment will always be taken the working day after the holiday.

The money for a standing order is taken from your account around midnight on the morning of your chosen date. If the funds aren't available the standing order won't get paid - it'll be up to you to sort out a different method of payment - and your bank will usually charge you a one-off fee. You can usually cancel the standing order in the days leading up to the payment but not on the day itself or the previous day.

Standing orders are often used for fixed-price bills between individuals. For example:

• Rent to a private landlord
• Paying pocket money into a child's account
• Paying back a Student Loan

Direct Debits

A direct debit is an agreement between you and the recipient, allowing them to take money out of your account. Technically they can take as much money as they like at any time, which is why the agreement will, in addition, usually have a set amount of money specified and a payment scheme, such as '£120³ on the 20th of the month'. If it's a flexible amount, the company will usually inform you before they take the payment of exactly how much it will be, to allow you to contact them if it's not correct.

Because the recipient is the one in control of taking the money, banks are unable to cancel a specific direct debit payment, although they can cancel the entire agreement a day or two before the payment is expected. Cancelling it is best done through the recipient at least three working days before the payment is due so that they can send the paperwork out to the bank. You can ask for a payment to be recalled by the bank up to six months after it was taken (although it's best done on the day), but of course the bill will remain unpaid and you will have to arrange payment in another way.

Like standing orders, direct debits are taken in the early morning, but unlike standing orders if there isn't enough money in your account there will often be a second attempt later in the day. Be warned though - if you don't have enough money in your account the payment will either bounce, or be paid and take you overdrawn. In both cases the bank will charge you. In some cases the recipient could try again a day or a week later, which could cause more charges if you aren't aware.

Direct debits are often a major factor in getting people into debt, because they aren't aware that the recipient may try to take the debit more than once, and it may be taken slightly before or after the specified date. This is especially true around bank holidays, when payments may be taken before or after the holiday. Watch out!

It is worth noting that if a direct debit has been taken incorrectly (for example, more than the stated fee or if you'd already cancelled the direct debit), the Banking Code, to which all banks subscribe, means that you are entitled to a refund from the bank under the Direct Debit Guarantee.

Direct debits are usually used for variable price bills between an individual and a company. For example:

• Paying quarterly energy bills
• Paying off a credit card bill
• Paying a mobile phone bill