What's the difference between direct debits and standing orders?

Q What's the difference between standing orders and direct debits? I used to have standing orders set up for most of my utilities, council tax, and so on, but I notice that increasingly this option is not available. Instead, utility companies and local authorities all want you to use direct debits.

As far as I can see, there's no difference to the company concerned, but I prefer to use standing orders because they give you, the customer, a bit more control, and I can set them up myself on my online bank account. I notice that direct debits are frequently advertised, so someone appears to be paying to promote this system. Is there a vested interest here?

SP

A The confusion between standing orders and direct debits is long running and completely understandable. Both are instructions to your bank to make payments, usually on a regular basis, to a third party. The difference is subtle but important.

With standing orders, you are giving your bank or building society an instruction to pay a certain individual/institution's bank account a set sum at regular intervals - usually monthly, but also weekly, quarterly or annually. The sum cannot change unless you cancel the existing instruction and set up a new one. It generally takes around three working days for the money to arrive in the recipient's bank account and the process is usually free, though some banks may charge.

A direct debit is an authorisation from a customer to allow a particular institution to collect sums from his/her bank account, provided that institution gives advance notice of the collection times and amounts. In most cases the date and the sum will be regular and unchanging - such as with regular direct debits to utility companies or credit card providers, for example.

The difference is a matter of cost and control. Direct debits are cheaper for institutions so they naturally favour them over standing orders. This method of payment might also offer benefits to the customer - many companies offer discounts to customers who pay using direct debit.

This is because payment by direct debit is instant - there is no waiting period while payment is verified by the bank. It is basically the equivalent of paying by debit card. Obviously, companies like this a lot, though that's not to say that customers lose anything by it.

Direct debit - which is administered by the company Direct Debit Ltd - also offers a customer guarantee: if any amount is ever debited inaccurately, you can have the amount recredited to your account as soon as you notice the problem. But you must complain to your bank in these instances, not the institution that has erroneously taken the payment.

Consumers urged to use direct debits