Standing Order Meaning

You are free to use this image on you website, templates, etc., Please provide us with an attribution linkHow to Provide Attribution?Article Link to be HyperlinkedFor eg:Source: Standing Order (wallstreetmojo.com)

A standing order can range from paying rent to transferring an amount from one account to another or donating to a charity. But, firstly, the account holders or payers have to set up their accounts and give relevant instructions to the bank to ensure accurate arrangement.

Key Takeaways

  • Standard order refers to the instructions that account holders give their banks to make recurring arrangements for timely payments to different service providers for a specific period.It can be used to pay credit card bills, rents, monthly or annual subscriptions, telecom bills, internet charges, fixed amounts to a specific person, donations, premiums, etc.It is easy to set up, but it is impossible to change the instructions once given until the prior ones are canceled. Moreover, it takes a lot of time for individuals or firms to update details.The account holder can cancel this arrangement anytime by notifying the bank.

How Does A Standing Order Work?

A standing order meaning in a bank refers to automating the payment systems wherein an account holder instructs banks to facilitate recurring payment arrangements. It has wide usage in the banking sector, allowing bankers to take one-time approval from customers for recurring transactions. The payment amount is usually fixed. However, such orders only deal with transactions of recurring nature.

Standing orders assist individuals in making timely bill payments. Thus, they are an ideal fit for organizations with few parties as the latter get an opportunity to enter into an automatic payment agreement with their customers to receive regular and timely payments.

A standing order also acts as a purchase order (PO) wherein businesses open separate accounts with specific suppliers to ensure they are paid for the supplies and services offered within a specific time range. The purchase department takes care of processing these orders, and once the same is processed, businesses can directly place orders with those specific suppliers as and when required.

Such orders reduce the processing costs, quicken the ordering process as the order placement is done directly with the supplier, and trigger the notification regarding the availability of the items being ordered using the account.

Firms, however, can cancel automatic payments when possessing insufficient funds. First, however, they must ensure that the necessary dues are paid on time to avoid degrading their credit history.

Examples

Let us consider the following standing order examples to understand it better:

Example #1

ABC Corporation takes a premise on rent, the monthly rent of which is $5,600. The due date for the same is the 10th of every month. ABC Corporation decides to automate such payment using a standing order.

Initially, the banker asks for specific details from ABC Corporation. Once the approval is received, the banker automatically pays the rent of $5,600 on the 10th of every month. If the date is a public holiday, the amount gets debitedDebitedDebit represents either an increase in a company’s expenses or a decline in its revenue. read more from the bank account the following business day.

Example #2

Advantages & Disadvantages

A standing order makes the placement and processing of supply orders easier. Still, the most effective use is in the banking sector, where the account holder instructs banks to automate the payment process to make bill payments, money transfers, and donations smooth and convenient. The payment to suppliers for their services is easily made through a standing order. In addition, it is easy to set up an account following certain guidelines. 

When the account holder’s directions are recorded, the suppliers and expected payees get timely payment without the payer worrying about the dates separately. The dates recorded in the system ensure the payments are disbursed without delay. As discussed, when businesses open a special account to maintain and manage supplies, the processing costs are controlled, which makes it a cost-effective measure. Plus, it assures payees of receiving the payments without fail.

Once the instructions are given to the bank, the automated order processing can’t be changed. The users must cancel the standard order before deploying the changes and bringing them into effect. As a result, the updated details and amounts take significant time to be reflected in order. 

Standard orders are less recommended for businesses that frequently change the amount and number/volume of items required. Therefore, these firms do not refer to such means of processing orders, as updating the details takes a lot of time. In addition, the accountants who receive such information during month-ends end up identifying reconciliation differences.

Standing Order vs Direct Debit

Individuals and firms are involved in paying for different services. For example, some service providers have to be paid the same amount every month, while there are services for which the amount might not be fixed. While standing order helps them automate the payment of a fixed amount for a specific period directly through banks, direct debit is meant to handle expenses that vary frequently.

For example, when one pays monthly house rent, which is the same for a specific tenure, it could be done using standard order. But the monthly grocery shopping from the same place at regular intervals might involve varied expenditures. Therefore, direct debit becomes the best payment mode in the second instance.

This article is a guide to What is Standing Order & its meaning. We explain it with examples, advantages & disadvantages, and a comparison with direct debit. You may learn more about financing from the following articles –

A standing order is an order given by account holders to their banks to pay their recurring expenses automatically. These expenses include fixed rental payments, monthly subscriptions, and internet charges.

One can set it up through internet banking/phone banking/ by submitting a form to your bank’s nearest branch. The company must provide the recipient’s bank account number, amount, payment frequency, and payment date while setting up the account for the first time.If there are changes in the transaction, including the parties involved, the date of payment, or the transaction amount, the customers must inform the bank of the same. Until the details are updated, the process continues as decided previously.

One may cancel an existing standing order using internet banking, mobile banking, or visiting the bank’s nearest branch. When canceling, they can notify the recipient in advance about the cancellation. It prevents from incurring additional interest or penalties arising out of delayed payments. After the cancellation, the account holder should ensure no further amount. If that happens, they can ask for a refund from the bank.

  • Infinite Banking Trust BankBank Draft vs Certified Cheque