Standing order – What is a standing order?
A standing order may be issued to a bank or savings bank, with the proviso, on a specific date, for example the 1st or 15th of a month, to pay a certain amount of money to a specific recipient on a regular basis. The recipient may be a third person or the payee himself. The bank automatically transfers the money amount at the specified deadline from the client’s account to the payee’s account. With the implementation of a standing order, the bank or savings bank must be explicitly commissioned. Orders can now be placed either at the bank’s branch or online via the website.
Introduction of the permanent order
The possibility of issuing a standing order has only existed since 1961. The standing order was introduced this year for the first time by the Postscheckamt in Hamburg and was subsequently adopted relatively quickly by all 13 postal check offices existing at that time in Germany. Because of the increasing distribution in 1963 guidelines were issued for the first time.
What are the advantages of a permanent contract?
A standing order is usually used for timely fulfillment of recurring and constant payment obligations. Especially for the performance of
- rent payments
- insurance contributions
- Alimony payments or
- Contributions for clubs and associations
the standing order for the debtor offers the advantage that the payments, without further instruction to the bank, on time. Prerequisite for the payment is that the account has sufficient cover, either as a credit or in the form of a credit line. If this is not the case, the transfer will not be executed by the bank.
Standing order: Legal basis
A so-called payment service framework agreement according to § 675f paragraph 2 of the Civil Code (BGB) is the condition for a standing order. With this contract, the payer gives his bank a one-time instruction. With the instruction, the bank receives the order, until further notice on certain dates, to transfer a constant amount of money to the account of the payee at the expense of his own account. Each payment transaction that is executed as part of a standing order is considered as a stand-alone payment order.
Changes to the standing order regarding payment amount, time of execution or accounts can be made at any time. Termination of the standing order is possible at the latest one working day before the next execution date.
A special form of the permanent order is the so-called levy order. With this form of standing order, the amount of money exceeding a certain base amount is debited from the current account at the end of the month, for example, and credited to a savings account.
Direct debit – What is a direct debit?
Direct debit is used to execute the direct debit procedure. In the direct debit method, the payee may collect a financial claim to the debtor from his bank account.
The SEPA Direct Debit scheme should allow direct debits within Europe. The reform also introduced new rules for SEPA Direct Debit
Direct debit as an instrument of cashless payment transactions
The direct debit system is a frequently used method in cashless payment transactions. The debtor’s account is debited with a sum equal to the claim made by the payee, while the amount is credited to the payee’s account by means of a credit note.
Beneficiary requires written consent of the debtor to direct debit
The payee needs to direct debit (See also our lexicon entry to banks) the consent of the debtor. Under European law, this direct debit authorization must be in writing. An oral permit has no legal legitimacy. The revocation of such a direct debit authorization is possible at any time.
Eight weeks opposition period in case of faulty direct debit
In the event of faulty or even fraudulent collection of the account, the person concerned has eight weeks to object to the direct debit. This is then posted back to the account of the person concerned. The direct debit includes direct debits as well as standing orders. The standing order comprises a fixed amount, while the direct debit collects different sums from the account.
Advantages of direct debit through direct debit
The direct debit is for both sides, payee (creditor) and debtor (debtor) as a convenient way to make payments.
Firstly, the debtor does not have to take care of the money transfer himself. Thus eliminates the possibility of forgetting a term of payment and the associated higher costs, which can be caused by, for example, dunning costs. In addition, the debtor saves the time he would need to fill in cumbersome transfer forms.
But the payee also benefits from the direct debit procedure. Because he has control over the incoming payments. He himself determines when the payment from the debtor’s account should be collected. As a result, costly dunning procedures and the administrative burden associated with them can usually be minimized. From the full control over all payments and the respective receipt of payment also follows a better management of the liquidity.