Standing Order
A standing order is a regular and automatic payment method set up with a person’s bank account, instructing the bank to pay a fixed amount to another account at regular intervals, such as weekly, monthly, or annually. It is commonly used in the UK and some other countries. Here are some key points about standing orders:
- Fixed Amount: Unlike a direct debit, where the amount can vary, the amount for a standing order is fixed unless changed by the account holder.
- Set up by Account Holder: The individual or company wishing to make the payments sets up the standing order, usually through their banking service. It’s not initiated by the beneficiary (the party receiving the payment).
- Control: The account holder has control over the standing order. They can change the amount, the frequency, or cancel the standing order altogether. This is done without needing permission from the beneficiary.
- No Third Party Involvement: Standing orders are a direct arrangement between a customer and their bank. There’s no need for a third-party service to facilitate the transaction, as is sometimes the case with other payment methods.
- Usage: Standing orders are often used for regular, fixed payments such as rent, mortgage, or savings.
- Potential Overdraft Risk: If there isn’t enough money in the account when the standing order is due, the payment might not go through, and the account holder could potentially be charged an overdraft fee or a returned item fee, depending on the bank’s policies.
- No Automatic Updates: If the bank details of the beneficiary change, the standing order doesn’t update automatically. The account holder needs to make the change manually.
- Comparatively Inflexible: While standing orders are great for fixed payments, they aren’t as flexible as direct debits for varying amounts or for allowing the beneficiary to claim the payment themselves.
Remember, when setting up a standing order, it’s essential to ensure there are sufficient funds in the account to cover the payment, to avoid potential charges or the hassle of missed payments.
Example of a Standing Order
Let’s take an example of someone setting up a standing order to pay their monthly rent.
Scenario: Rent Payment for an Apartment
Tenant’s Name: Jane Smith
Landlord’s Name: Mr. John Brown
Rent Amount: £1,000 per month
Due Date: 1st of every month
Steps Jane would take to set up a standing order:
- Initiate the Standing Order: Jane would log in to her online banking or visit her bank in person. She chooses the option to set up a new standing order.
- Beneficiary Details: She enters Mr. John Brown’s bank account details, including the bank name, account number, and sort code (or other relevant information based on the country and bank).
- Amount and Frequency: Jane sets the amount at £1,000. She then selects the frequency as ‘monthly’ and chooses the date as the 1st of every month.
- Duration: She can choose for the standing order to continue indefinitely until she manually stops it, or she can set an end date. If her lease is for one year, for example, she might set it to end after 12 payments.
- Review and Confirm: Before finalizing, Jane reviews all the details to ensure they’re correct. Once she’s satisfied, she confirms the setup of the standing order.
From this point onward, Jane’s bank will automatically transfer £1,000 to Mr. Brown’s account on the 1st of every month. This ensures that her rent is always paid on time, and she doesn’t have to remember to make manual transfers.
Advantages for Jane:
- She doesn’t have to remember to pay her rent every month; it’s automated.
- She can be sure her payments are made on time, avoiding potential late fees.
- It provides a clear record of payments in her bank statements.
Consideration for Jane:
- She needs to ensure that her bank account has sufficient funds by the end of each month to cover the rent payment to avoid potential fees or payment failure.
If Jane ever decides to move or if there’s any change in the rent amount, she would need to amend or cancel the standing order accordingly.
