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Methods of transferring money: standing orders and Direct Debits

In this step we will look at standing orders and Direct Debits.

The next two methods of transferring money that we’re going to look at are standing orders (sometimes referred to as an ‘SO’) and Direct Debits (a ‘DD’). Watch the video above to hear the Kaplan tutor explain what these two methods are and how they differ from one another.

These are two methods of transferring money from a business’s account to that of another entity without having to write a cheque!

Standing orders

A standing order is an instruction to the customer’s bank to make regular payments, usually of a fixed amount.

To arrange a standing order, all the customer needs to do is sign a standing order mandate which authorises the bank to make the payments.

Standing orders are ideal for paying regular monthly bills such as insurance premiums.

But they can also be used to transfer money between a customer’s own different accounts. For example, the business might set up a standing order to each month transfer a sum of money from their current account to a deposit account, where it will earn more interest and help build the business’s reserves.

Direct Debits

Direct Debits are an instruction to the customer’s bank to allow a third party to debit (i.e. to collect money from) the customer’s account at regular intervals.

Direct Debits are a more suitable way of transferring money compared with standing orders when either:

  • the amount varies from payment to payment
  • or the date of payment is uncertain.

Direct Debits are useful, for example, for paying items such as membership subscriptions which increase from year to year or monthly bills which alter in amount each month, such as credit card bills.

Both Direct Debits and standing orders remain active until the customer cancels or changes them.

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Other Accounting Functions: Payroll and Banking

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