Last editedApr 20223 min read
The payments industry is continually evolving, and it can be difficult to keep up with new terms and solutions. However, getting to grips with core payment terminology is imperative to running a business. With that in mind, let’s explore push and pull payments, what they mean, and what the difference between them is.
Push vs pull payments: definitions
A push payment is a method of payment whereby a payer initiates the sending of money to a payee. The payer is therefore in control of the payment, including the amount and destination.
A pull payment meanwhile, is a method of payment whereby the payee instructs the payer to send the money. It is therefore the payee who is in control of the payment and instructing that the money be sent. Beforehand, however, a payer must give authorisation for the funds to be taken.
Examples of push and pull payments
Now we understand the basic concept behind push and pull payments, let’s explore some examples.
Push payment examples
Cash is a straightforward example of a push payment. It involves the payer passing over the money to the payee, in full control of the amount he/she is handing over.
Banktransfers are another classic example of push payments as the payer is in full control of how much is being sent and the destination of the funds.
Standing orders are push payments for the same reason as bank transfers are, only in this case the transfers are set up in advance.
Pull payment examples
Direct Debits are clear examples of pull payments as they involve the payer giving permission for an individual or institution to take money from their account at scheduled intervals. It is therefore the payee who is in control of the payment amount and the destination.
Cheques are also examples of pull payments. This is a little confusing as it is the payer who writes out the cheque. However, the cheque itself is not actually payment, it’s like a permission slip for the payee to take the funds out of the payer’s account. The payment is actually carried out by the payee, making it a pull payment.
Card payments are another slightly less obvious example of a pull payment. This is because presenting your card to a payee actually just provides them with the information required to draw the funds from your account. Then the payee will draw the funds, usually 1-3 days later in a process called settlement.
Push vs pull payments: pros and cons
Choosing the right payment method for you will depend on a number of factors, as both payment types come with their own set of advantages and disadvantages, such as:
Speed — Push payments are typically quicker as pull payments require the extra step of payers giving permission for pulls to occur.
Control — As a payer, push payments can be advantageous due to you being the one in control of the payment, allowing you to better manage your finances overall. However, naturally, as the payee, pull payments allow you greater control which can be a positive for the same reason.
Payee risk — With push payments, payees place their trust in the payer to make the payment in full and on time. When goods or services are provided in advance of payment, this can lead to the risk that payment will not be made. Conversely, with pull payments, the payee can not be sure that the funds they intend on drawing from the payer actually exist. When they don’t, this leads to cheques bouncing, for example. However, with card payments, a process of authorisation is carried out and the payment will decline if there are insufficient funds on the account.
Payments with GoCardless
Non-Direct Debit payment methods require the payer to take action, so the merchant isn't in control and doesn't have visibility. This leads to late payments, which cause cash flow concerns and stress.
Why? With push-based methods the payer must take action to send the payment, which often doesn't happen or is delayed.
GoCardless enables businesses to collect payments directly from their customers' bank accounts. It is easy and cost effective, for both recurring and one-off payments.
Collecting directly from the bank account, via Direct Debit, puts the business in greater control of incoming payments as it is pull based. That is to say, the business controls the payment amount and date.
We can help
GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.