Cash, Cheques and Bacs transfer vs Direct Debit

A comparison of Direct Debit and cash, cheques and Bacs transfer

Many businesses accept regular payments by cheques, cash or Bacs transfer. Increasingly, however, SMEs across the country are turning to Direct Debit because it is simpler and cheaper.

Cash and cheque

Payment cheques are the traditional method for collecting regular and one-off payments. A payment cheque is a document, written and signed by a customer, instructing a bank or building society to debit your account and pay another person or organisation. A payment cheque can take up to 7 working days to clear.

Customers have full control over when and how much they pay when using cash or cheques.

Bacs transfers

A Bacs transfer (or "Bacs Direct Credit" or "Direct Deposit") is a secure service which enables organisations to make payments direct into another bank or building society account. Using a Bacs transfer, your bank allows you to credit another account by using either your personal or business banking service. You will need the name of the payee, the name of their bank, the payee’s bank account number and sort code (and will need the same details for the account to be debited).

Bacs transfers are typically used by organisations to pay salaries, pensions, state benefits and tax credits but like cash and cheques, they can also be used by customers for one-off payments. Customers have full control over when and how much they pay through these methods.

Bacs transfer payments work on a three day cycle, taking three working days to clear. Payments are submitted to Bacs on the first day, processed by the banks on the second day, and simultaneously taken from the sender account and credited to the recipient account on the third day.

Direct Debit

Direct Debit is an authorisation from a customer that enables you to take regular payments from their bank account. Direct Debit payments can vary in frequency and amount, so you can collect however much you need to when you need to.

Cash, Cheques and Bacs transfer vs Direct Debit

To help you make the right decision for you, here is a quick summary of the differences between Direct Debit and Bacs payments for your business:

Cash/cheques/Bacs Transfers Direct Debit
Cost per payment High. ~£1 + 1 hour to pay in Low. 20 - 40p or 1% per payment depending on provider
Failure rates and notifications Low – None. Cash: None, Cheques/Bacs transfers: Low. You will not be notified of failures. Very Low. < 1% with GoCardless. Automatic notification. You are notified automatically of failures and can re-submit the payment when you want to.
Flexibility of payments Low. You will need to convince customers to make any changes to their payments themselves. High. You can collect variable amounts or change the amount or date of payments without asking customers for further authorisation
Risk of late payment High. You are dependent on customers paying on time. Low. You can collect a payment whenever it is due.
Admin required High.
  • Manually pay in cheques
  • Manually update accounts
  • Manually check bank statements to see that Bacs transfers have been paid.
  • Manually reconcile each month.
Very low.
  • Automatically submit 1000s of payments at once
  • Automatically update your accounts
  • Instant notifications when payments fail
  • Easily track payments without checking bank statements
Customer protection Low. Once payments are made, no refunds. High. Immediate refunds from your bank with no time limit in the event of an incorrect charge.

Which payment method is right for me?

Cash, cheque or Bacs transfers

You should use cash, cheque or Bacs transfers if:

  • You have very few customers to keep track of
  • You are mainly collecting one-off payments
  • You want to collect high-value payments (and want to avoid paying transaction fees on these)

Direct Debit

You should use Direct Debit if:

  • You are taking regular payments
  • You don't need payments to arrive instantly
  • You have many customers to keep track of and want to reduce admin time

To find out more about using Direct Debit to collect payments, watch our seven minute demo or check out our 60 second guide to accessing the Direct Debit scheme.

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