Direct Debit vs Standing Order

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    Direct Debit vs Standing Order

    Has anyone any experience in collecting rent from tenants using Direct Debit opposed to Standing Order? From what i understand, with Direct Debit the payee (landlord) is in control, rather than the payor (tenant). JCould be a good way to minimize missed payments during covid-19. Does anyone know of any services available that allow landlords to set up Direct Debits?

    #2
    Most landlords won't qualify to be able to use Direct Debits.
    You have to be an approved member of the scheme and most businesses are too small to qualify.
    Last time I was involved in setting one up, the business needed to be turning over £1m (or was expecting to and could persuade a bank of that).

    So it's a non-starter.

    And DD rules are strict - you have to agree to reverse them under certain situations, and a pre-collection notification is mandatory.
    And they're as easy to cancel as a standing order.
    When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
    Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

    Comment


      #3
      .

      https://www.moneyadviceservice.org.u...tanding-orders

      My rent is paid every 4 weeks by recurring standing order with a reference like this

      example. F1-10-SW1A 2AA.
      Thunderbirds are go

      Comment


        #4
        Originally posted by danwestgarth View Post
        Does anyone know of any services available that allow landlords to set up Direct Debits?
        Yes. Not allowed to advertise but you should be able to find them with a quick search.

        It costs a couple of quid per transaction, which is why I stick with standing orders.

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          #5
          Our bank offered to allow us to claim payments by DD but I declined because a tenant can ask for a payment to be reversed, which would be rather a problem if by then a deposit has been released back or licence to assign has been granted if in the case of a long lessee or commercial lessee.

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            #6
            Getting a smart tenant to sign a DD mandate may be a little tricky. You're basically asking them to sign a form saying you can take as much as you like whenever you like.

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              #7
              Originally posted by jpkeates View Post
              And they're as easy to cancel as a standing order.
              This is the crucial point to me why there's zero benefit in using Direct Debits.

              Comment


                #8
                Originally posted by Kape65 View Post
                Getting a smart tenant to sign a DD mandate may be a little tricky.
                That might be one small benefit of requesting DD rather than SO.

                To flag up smart tricky potential tenants.

                90% of normal people don't know the difference.

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                  #9
                  Someone here several years ago had a tenant reverse the direct debit for all his rent over many months, saying he hadn't authorised it. Standing order for me, in view of that.

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                    #10
                    Don't think I've used a standing order for ten years. I select tenants capable of setting up monthly BACS transfers. Makes it easy if I allow them to make a deduction for a minor repair for example

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                      #11
                      Originally posted by boletus View Post

                      That might be one small benefit of requesting DD rather than SO.

                      To flag up smart tricky potential tenants.

                      90% of normal people don't know the difference.
                      There is no benefit of using one over the other. So why would a tenant who agrees to the method of payment suggested by the landlord be a 'smart tricky potential tenant'? This sounds like paranoia to me.

                      Comment


                        #12
                        Originally posted by ChrisDennison View Post

                        There is no benefit of using one over the other. So why would a tenant who agrees to the method of payment suggested by the landlord be a 'smart tricky potential tenant'? This sounds like paranoia to me.
                        Because a tenant who knows the difference between a SO and DD is smarter financially than most normal people. A potential tenant arguing (or being 'tricky') about how I do business is a warning sign.

                        Being paranoid when a new tenant can't legally be evicted before 2022?
                        I'll be searching a lot deeper than that when selecting new tenants.


                        (I stipulate payment by standing order BTW.)

                        Comment


                          #13
                          In short, yes, you probably can take payments by Direct Debit but it’s probably not the best choice for you.

                          A standing order is simply an instruction the payer (tenant, in your case) has with their bank to make recurring payments of a fixed amount to a payee (you).

                          A Direct Debit, on the other hand, is essentially permission for you to take money out of the payer’s account. When and how much can vary. (That’s why utility companies love Direct Debit: it allows them to take the exact amount of a bill whenever it’s due.)

                          This flexibility comes with obligations, however, as other posters have mentioned. For example, you have to give the payer certain prescribed information when they set up the Direct Debit. If the amount or schedule changes, you have to tell them several days in advance of the next payment.

                          There are companies that make it easy for small businesses to take Direct Debit payments. Some of them even target landlords. They can hide some of the complexity of the Direct Debit scheme (which is really a paper-based system from the 1960s that’s been dragged into the twenty-first century). Some of them will help you meet the obligations described above. Some can even provide a website where your payers can enter their bank details to set up their Direct Debit.

                          However, it’s really important to stress that a Direct Debit doesn’t mean you’ll get the money. Direct Debit payments can fail. The payer not having enough money in their bank account is one reason. You won’t even find out if it’s failed until after the payment date (you can get told it failed though, unlike a standing order where the money simply won’t appear in your account). Sometimes you might even be told the payment was successful but then find out later it actually failed (this depends on how the company that’s processing your Direct Debits works). It is possible to retry Direct Debits but there’s no guarantee.

                          Actually, there is a guarantee. It’s called the Direct Debit Guarantee but it’s for payers and not for you. It’s very heavily in favour the payer (and rightly so — if they’re going to give someone permission to take money out of their bank account, they want strong protections if something goes wrong). The payer can basically go to their bank and get the money back from a Direct Debit straight away. Their bank will then want the money back from you (you can dispute this but it’s going to be a huge hassle).

                          It’s just as easy for a payer to cancel a Direct Debit as it is a standing order. They can just contact their bank (or use online banking or their bank’s mobile app). They can also contact you: you have to immediately cancel a Direct Debit if the payer asks you to. So don’t think Direct Debit makes it harder for a tenant to stop paying you. (The only advantage I can think of here for Direct Debits over standing orders is that if a payer cancels a Direct Debit with their bank you might get notified before the next payment date.)

                          Finally, while standing orders are usually free for the payee, you’re going to have to pay fees to whoever’s processing your Direct Debits.

                          Oh, and you also probably won’t actually receive each payment in your bank account until a couple of days after it leaves the payer’s bank account (again, this depends on the company that’s processing your Direct Debits). Whereas a standing order will usually arrive on rent day before breakfast.

                          Overall, standing orders seem like a much better fit for a landlord. You’re taking the same amount of money on a regular schedule. I suppose if you increase the rent each year it’s pain because you’ll have to get the tenant to cancel their standing order and set up a new one. With a Direct Debit you could simply increase the amount but I think that’s a fairly marginal benefit compared to the disadvantages.

                          If you had thousands of tenants and they were all paying varying amounts each month, Direct Debit might be the answer. But for most landlords standing orders are the way to go.

                          Comment


                            #14
                            Originally posted by boletus View Post

                            Because a tenant who knows the difference between a SO and DD is smarter financially than most normal people. A potential tenant arguing (or being 'tricky') about how I do business is a warning sign.
                            I still don’t understand how he would be arguing about it if he accepts you wanting to set rent payments up by direct debit rather than by standing order...? Or if he accepts you wanting to set up a standing order rather than a direct debit? ​​​​​​

                            Or how there is a red flag if he knows the difference between the two. I would rather think that someone who doesn’t know the difference between the two is probably not very good with their finances, so this would be much more of a red flag to me than the other way round. Or are you looking for daft tenants who are unlikely to know the basics of life, so that they also don’t know their rights and you can push them around with as little resistance as possible? That of course might be a viable reason... not necessarily a positive one but definitely an understandable one.

                            (I stipulate payment by standing order BTW.)
                            You can stipulate all you want. How do you know whether the tenant pays by standing order or not? Even if you ask him to complete a standing order mandate form and send this to his bank, he might just delete it online once it has been set up in his bank account. So what exactly is the point?


                            Being paranoid when a new tenant can't legally be evicted before 2022?
                            I'll be searching a lot deeper than that when selecting new tenants.
                            And that’s absolutely fine. I am just curious why you would exclude a tenant on that basis.

                            Comment


                              #15
                              It's just one of many, many things that come up during a natural conversation with a prospective tenant. E.g "How are you paying the rent?"

                              DD & SO are often used interchangeably. I've lost count of the amount of times I've explained it. A tenant knowing the difference wouldn't be a red flag but a tenant knowing the difference and then saying "I'll pay you by standing order but I refuse to pay you by direct debit" would get me questioning further.


                              Originally posted by ChrisDennison View Post

                              How do you know whether the tenant pays by standing order or not?
                              About half of my incoming rent payments say 'SO'. Others don't
                              (due to some quirk in the banking system)
                              even though I know they are SO's . But I check what date they are paid, even when (midnight, AM, PM, evening). I'm confident I know whether nearly all payments are SO or not.

                              My tenants are generally smarter than me, just not about my business of landlord and tenants.

                              Do you self manage your own tenants directly?

                              Comment

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