Why every scaling B2B business should avoid bank transfer

52% of all B2B payments in the UK are done by bank transfer, but is it time to retire bank transfer as a B2B payment method for high-growth businesses?


The UK consumer payments landscape is dominated, perhaps unsurprisingly, by debit cards, with credit cards, Direct Debit and digital wallets also seeing consistent growth.

In B2B however, the payments landscape still feels somewhat old fashioned. In the UK, 52% of all B2B payments are still done via bank transfer (UK Finance, UK payment statistics 2018)

So, why do businesses rely so heavily on bank transfer, even though the consumer market looks so different?

This article explores the benefits and drawbacks of this predominant B2B payment method and what alternatives are out there for the modern business.

The benefits of bank transfer

Most businesses using bank transfer to collect payments, do so for two key reasons:

  • The lack of transaction fees on smaller payments (larger amounts may require a CHAPS transfer, which includes fees)
  • The low failure rates on payments

The lack of transaction fees (other than on large payments) is a huge cost reduction. A credit card transaction, on the other hand, could cost you upwards of 3% of the overall payment. The comparative long-term savings are potentially huge.

The low failure rates are also a clear incentive. Every failed payment is both lost revenue and an added admin cost when rectifying, which is particularly troubling for businesses operating with fine profit margins.

Conversely, card payments, for example, fail upwards of 5% of the time.

While the advantages are clear, the disadvantages might not. Bank transfer is not without its faults. Some of which may have long-term implications for your company.

Where bank transfer lets you down

‘Push’ payment limitations

The biggest issue with bank transfer is that it is a ‘push’ payment method, meaning each and every payment is initiated by the payer. This takes the process of getting paid out of the hands of the business collecting payment.

Push payments like bank transfer can lead to higher debtor days and more aged debts, because customers inevitably forget (or sometimes choose not) to pay. GoCardless customer AutoTask, for example, has to wait 3.5x longer for push payments than pull payments (more on pull payments below).

A less than ideal customer experience

With bank transfer, one of the few ways to attempt to receive the payment that you’re owed is to start a potentially awkward conversation with whoever owes you money. In addition to the cash flow problem that missed payments create, they can also damage relationships if you’re constantly bothering your customers for payment.

High manual intervention and admin

There’s also the pain of all the manual reconciliation needed to calculate if all the required payments have been successful, whether they were the right amount and if they were paid on time. It’s a time-intensive job with a high amount of admin required.

The Propel by Deloitte team was able to shave 15 hours every month off time spent on payments admin when reducing its reliance on bank transfer. Sometimes, the reduction in admin is so great it actually frees up members of staff to focus on other activities that help the business to grow.

Also, despite the low failure rates, like all payment methods, a small portion of payments still fail. The problem with bank transfer is that you won’t receive any notification about this, and you’ll need to manually find these failed payments during reconciliation at the end of the month.

A lack of protection

Finally, there’s a lack of payer protection. Once the payment is made, it’s final. If a customer sends their payment to the wrong account, they have no way to guarantee that the payment will be returned.

How can you successfully replace bank transfer?

As you can see, despite some benefits, the limitations of bank transfer can cause a serious headache for your business, your team and your customers, especially as your company starts to grow. If you you want to scale at pace, what has previously been an inconvenient headache will quickly grind operations to a halt.

But what can you replace it with? Credit cards have high failure rates and cash or cheque offer even less visibility and protection.

One potential option is Direct Debit. It also has very low failure rates and while there will inevitably be fees if managed through a provider, they are considerably lower than that of credit cards (usually around 1% for Direct Debit).

9 out of every 10 UK consumers use Direct Debit to pay at least one household bill; it’s a trusted payment method. There’s no reason it can’t be the same for businesses.

There are also a number of other advantages that Direct Debit has over bank transfer:

Push to pull

Bank transfer is a ‘push’ payment method, meaning the customer needs to actively authorise the payment every time, so the business cannot control exactly when the funds will arrive in their account. Direct Debit, on the other hand, is a ‘pull’ method. This means that the customer authorises the business to take agreed-upon payments from their bank on an ad-hoc or a recurring basis with greater flexibility.

GoCardless VP Product Duncan has discussed in greater depth why the shifting business landscape creates even more opportunity for a pull-based payment method to thrive.

To put the benefits of moving to a pull payment into concrete terms, GoCardless customer IntY reduced it’s debtor days by 67% since moving from bank transfer to Direct Debit.

All-round visibility

The lack of visibility is a major pain for any business that wants to create and manage a reliable source of income. Without, you simply can't tell how effective your payment collection is without constant (and human error-prone) admin.

While it varies by provider, the Direct Debit system allows for detailed metrics of various aspects of payment collection.

At GoCardless, for example, you can see:

  • Every payment you receive and for how much
  • Your total payout every month
  • When a payment fails or is cancelled
  • The reason a payment fails

In addition, when you have visibility over which payments failed and why, you can instantly retry a payment to reduce the overall percentage of outstanding failed payments.

This visibility makes for much more straightforward reconciliation through one of our partner integrations.

No more awkward conversations

The automation of a pull-based payment method, plus the increase in visibility and the ability to retry payments, reduces the need to have awkward conversations with your customers about getting paid. Taking the onus away from the customer to remember to pay makes for a much more streamlined experience.

“GoCardless stops those awkward conversations with clients, it saves time and it obviously helps cash flow – that’s a huge thing!” Saija Mahon ,Founder & MD, Mahon Digital

Making the move to Direct Debit happen

If you decide that bank transfer is no longer a viable solution for your business as it scales, and you think Direct Debit might be the payment method to switch to, why not have a quick conversation with a Direct Debit specialist at GoCardless?

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