Charities and Membership Organisations: Standing Order or Direct Debit?

Should you ask your members / donors to pay by Standing Order or Direct Debit? Does it matter so long as you receive payment? The answer is of course, yes it does! Organisations can increase efficiencies and reduce costs through using Direct Debits – which offer a more convenient and secure payment method vs Standing Orders.  Here’s some reasons why.

Standing Orders are initiated by the payer’s bank on behalf of the payer for a fixed amount on a fixed date. Donor’s / member’s are often familiar with this type of payment method and – as they have complete control over the payment – are often comfortable with it.  BUT, remember 8 our of 10 UK adults have at least 1 Direct Debit and many have considerably more, so Direct Debit is also a payment method we are all familiar with.  It’s also one which offers clear advantages to both the organisation and the individual.

Direct Debit payments for example are covered by the Direct Debit Guarantee – while Standing Orders are not. This means that if any errors are made, the member/donor can reclaim their money if it was paid by Direct Debit. If they make payments into an incorrect account via Standing Order however, they are covered by no such Guarantee.

For an organisation, Direct Debit payments offer far greater control than Standing Orders:

• With Direct Debits, the organisation controls the amount that is paid. With Standing Orders the individual controls the amount. So, should membership fees increase for example and payment is being made via Direct Debit the organisation, after providing advance notice, can increase / decrease the amount. If payment is made via Standing Order, the organisation will be reliant on the individual updating the Standing Order.
• With Direct Debits, varying amounts can be collected – not the case with Standing Orders which are for a set amount. This means that if a member accesses difference services at different times, all the monies can be collected via Direct Debit – be it an annual fee, a one-off event subscription, goods and services etc. With Standing Orders the individual will need to create different Standing Orders for each item if the amounts vary.
• With Direct Debits, the organisation controls the date that payment is made. With Standing Orders the individual controls the date that it is paid. An organisation might for example prefer all its income to come in on specified days but this is not necessarily possible to achieve if the individuals decide what date to make the payment.
• With Direct Debits, the organisation controls the reference used for the payment and can allocate a meaningful reference to each donor / member. With Standing Orders, an individual may not use reference text that is easy for the organisation to understand – for example using ‘charity donation’ rather than their name or customer reference number. This can make it difficult to track who has actually paid.
• With Direct Debits, the organisation receives Bacs reports to keep them informed about their payments. This is not the case with Standing Orders. If an individual decides to cancel a Direct Debit for example with their bank and not inform the organisation directly, the organisation will still be alerted to this via Bacs reports. With Standing Orders however, the first clue is when income is reduced. A period of reconciliation can follow to track down who has cancelled – and then there can be a process to work out why – all of which takes time.

So if your Charity / Membership group still has lots of customers using Standing Orders it might be time to consider moving them onto Direct Debits.  Certainly it would be worthwhile to investigate Direct Debits as a payment method for new donors / members. If you would like to learn more about the differences between Standing Orders and Direct Debits and how Direct Debits can benefit your organisation, please contact us for information and help.