Last editedJun 20222 min read
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 takes 2 working days to clear.
Customers have full control over when and how much they pay when using cash or cheques.
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 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.
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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. Depends on provider. (See our pricing)|
|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.|
|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)
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.