Standing orders > everything important that you need to know!

During the last time, our readership increased by some young readers, so I have worked again on a basic subject.

Advantages of standing orders:

• save time and work
• guarantee a timely execution
• save oneself a reminder note (the almost automatical consequence, if one does not pay on time)
• are free of charge at many current accounts.

1. What exactly is a standing order?

Standing orders are transfers that are executed

• regularly
• with the same amount
• to the same receiver.

The payment of the rent is one of the most frequent purposes of standing orders.

Furthermore, standing orders are used for savings – for example, an automized savings rate to a call money account – or for the repayment of a loan.

However, most banks switched to the direct debit procedure for the repayment of loans; this is virtually “vice-versa” to the standing order. The bank always debits the same amount at the same receiver in an automized procedure and regular intervals.

2. How to save money and time with standing orders

That one can save money and time with standing orders was already disclosed in the list above. Now we present the details.

2.1 One saves time at two points:

• One only enters the transfer order once and it is always executed in the same way.

  Let’s stick to the example of rent payment: There are people, who transfer the rent every month manually. Even if one sets up an order template (herein, the account data of the payment receiver and sometimes also the amount, as well as the purpose are saved), it always takes longer than an automated execution of the standing order. In the end, one has to log into the bank (online banking) or submit the transfer form at the bank.

• One saves time, as there cannot occur a late payment. Thanks to standing orders, it is not necessary anymore to waste time on reminder notes, excuses, account search, etc. At German banks, one can be 99.9999 per cent sure that the standing orders will be executed as planned.

2.2. One saves money at two points too:

• Depending on the personal financial circumstances, one saves money with a timely executed standing order (no payment before the due date (too early!)), as overdraft facility interest won’t be charged unnecessarily or one even gets interest for the time, in which the money is still on the own account.

• Likewise, one potentially saves money compared to a payment after the due date, as one can be sure with a standing order that the payment will be timely and one does not have to fear reminder notes with reminder charges.

  This happens again and again to people, who plan to pay through a transfer, but then something comes up again.

One saves time, money and nerves with standing orders 😉

3. Execution date of standing orders

If one sets up a standing order, it can be at any desired date in the future at most banks. Only with the execution on the same day, no standing orders can be accepted.

If today is the 4th of September, then one can set up a standing order with the first execution at the 5th of September as the earliest date.

If one chooses monthly as the interval, the next payment will take place of the 5th of October. If one sets up quarterly , the next payment will be executed on the 5th of December.

Depend on the provider, following intervals are common:

• weekly (only very few)
• monthly (very common)
• bimonthly
• quarterly
• half-yearly
• yearly

3.1 Weekend and holidays

If the execution date is on a Saturday, Sunday or holiday, then the standing order will be executed on the following banking day.

For example, the 1st of October 2016 is a Saturday. If one programs the standing order that it should be executed on every 1st of the month, then in the month October, the execution would be on the 3rd, as Monday is the first banking day of that month.

An advancement of the execution to the last banking day of the month, if the first banking day of the month is no banking day, – as practiced by some (public) employers – is not possible at private standing orders.

Screenshot of the transaction display at the free current account of the DKB:

This is how it looks like at the DKB, if standing orders were executed.

4. Date of the credit entry of standing orders

In the SEPA area the credit entry at the payment receiver takes place at the same or latest on the next banking day. This is required by EU-law. One speaks of a SEPA standing order.

If you transfer in Euros, there is no difference, whether you transfer to the Volksbank in Munich, to the Sparkasse in Lisbon or to the canton bank in Zurich.

Setting up a transfer on the 1st in this example would not be necessary for optimizing the bank accounts, as there are rarely holidays in Germany that are on a Monday, which would be the 4th of the month at the same time.

Rule of thumb: Calculate the due date minus 3 days in order to take into account any possible events and neither pay early nor late.

5. Change and delete standing orders

Standing orders can be changed or deleted anytime before the next execution. However, not on the day of execution, as the bank systems uploads them overnight.

If an execution is planned on the 13th of September, however, it should be changed or cancelled, this must be made on the 12th of September or earlier.

Standing orders can also be changed partially. For exemple, the receiver and the execution date stay the same, but the amount changes. This is a classic situation of rent increases.

6. Non-execution of standing orders

Let’s take a look at a tricky subject: the non-execution of standing orders.

By setting up a standing order, one is concluding a contract with the bank, in the meaning of the civil code, with the consequence that the bank is obligated to execute your transfer in the set up amount and on time.

There are only two cases, in which the bank is freed from the execution:

• not enough money in the account

  In the language of the banks, that means, “The account has no funding.“ Banks are only obligated to execute payment orders on time, if the corresponding balance is in the account. If only one cent is missing to the full transfer amount, one has to expect that the standing order won’t be executed.

  This is different, if one has agreed with the bank on an overdraft facility. The overdraft facility lowers the “zero line”. Standing orders will also be executed without balance in the current account, as long as one operates within the agreed credit line.

  If the execution would exceed the credit line – even if only by one cent –, the bank is not obligated to execute the transfer.

• Cancellation of the account

  Standing orders can be set up without end date or with an end date in the far future. If the account is cancelled in the meantime, then the bank is not obligated to execute the order.

What are the consequences?

If the payment is not received on time, this will be noticed and has unpleasant consequences, such as reminder notes, reminder fees, late payment interest, cancellation of services, etc. by the payment receiver.

This is why one should always take a look at the current account and check the bank statement regularly. Only through the bank statement, you can find out, whether the standing order was executed or not!

If it was executed, you can see it in the account transactions. If it was not executed, one can also see it in the account transactions.

German loan institutions are namely obligated to report the non-execution to their customers (so that the client can act and possibly reduce or prevent further damage because of the lacking payment).

The notification can take place through the bank statement or also by mail. In contrast to the return of a SEPA-debit due to a lack of funding, the client must not be charged any fees for the non-execution and the notification.

Court says: notify the customer at a non-execution, but do not charge any fees!

Judgement: Federal court of justice at the 13th of February, 2001, Case number XI ZR 197/00

7. Setting up a standing order

Setting up a standing order is not more elaborate than setting up a transfer through the online banking. One only adds the information regarding the execution interval.

How this works, I have recorded for you at two of my accounts.

7.1 How it works at the DKB:

7.2. How the setup of the Onlinekonto of PayCenter works:

8. Who has actually invented the standing order?

Quite often, when it is about efficiency, the invention is a “German account“.

For the first time, the Postscheckamt Hamburg 1961 introduced the “automized standing order service”. Source: Helmut Schröder in “EDV-Pionierleistungen bei komplexen Anwendungen“ (computer pioneer services at complex applications), ISBN: 978-3-8348-2414-1.

The standing order is a German invention!

The introduction of the standing order was a huge success and has already been used in 1962 several million times.

The standing order has developed to an export hit, especially to European countries … However, it has not yet spread to the USA. There, this form of practical transfer still does not exist.

May I ask for a favour 🙂

If you like this article, I would be grateful for a positive rating through the stars and a recommendation to your friends and family … By the way, there are far more bank customers than one may think, who do not yet use this efficient form of transfer.

If you set up your first standing order because of this article, I would be very happy for your feedback through the comments feature. Many thanks!

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