Last editedApr 20234 min read
There’s no shortage of ways to get paid these days, but not all payment methods are created equal. Your business needs maximum efficiency, so it’s wise to know your options and make sure you choose the most suitable payment method to help your workflow rather than hinder it.
Old School: Cash and Cheque
We’re moving towards a cash-free society. With the rise of electronic payment methods, including Android/Apple Pay and Contactless, people’s relationship with cash and cheques has changed.
There will always be some people who prefer to do things the old-fashioned way. Paying by cash or cheque gives customers full control over payments. But it’s not so great for businesses. Receiving regular payments by cash or cheque can be fraught with admin hassles and unpredictability, as you depend on customers to pay the correct amounts on time.
Also, the need for manual processing of cash and cheques wastes valuable time and effort that businesses could deploy elsewhere. These methods may be sufficient for limited use for one-off payments. But if you want an efficient business, forget about taking payments by cash or cheque.
Using cash or cheque to take large payments means you can avoid transaction fees
Low to zero failure rates
Full of manual admin, which wastes valuable time for your business
Unpredictable timings and amounts, which is bad for your business cashflow
Limited flexibility, as payment amounts and timings depend on the customer
No automatic notifications about late or missed payments
This commonly-used payment method allows customers to make payments from their bank account directly into yours. Organisations typically use Bacs payments to pay salaries, pensions, state benefits and tax credits. Just like cash and cheques, Bacs can also be used to take one-off payments. Customers have full control over when and how much they pay.
But if a customer fails to pay you with Bacs transfer, you won’t know unless you check your bank account. You’ll also need to convince customers to make payments themselves. This creates a high risk of late payment and you’re always dependent on customers paying on time. Plus, there’s admin hassle for both the merchant and the customer, when manually entering and then reconciling the payments.
Using Bacs transfer to take large payments means you can avoid transaction fees
Low to zero failure rates
No alerts for failed payments
No automatic reconciliation
Requires customers to pay the right amount at the right time
High risk of late payment
Credit/Debit Card Payments (CPA)
Credit and debit card payments are commonly used for taking payments, both on an ad-hoc and recurring basis. Payments happen via the Continuous Payment Authority (CPA) system, where customers authorise your business to take funds from their cards. CPA enables you to manage payments with relative ease, but there are still some important points to keep in mind.
To take CPA payments, customers must supply you with their 16 digit card number. This is then linked to your bank account by the card networks and settlement banks. Customers sign up using their credit or debit card number by phone, online or in person. Risk of late payment is low, because you can charge customers automatically when the payment is due.
Useful for one-off transactions needing immediate payment, such as those for e-commerce
Card details are easily stored to use for subscription payments and future ad-hoc transactions
High costs per payment, plus monthly fees for maintaining the merchant account
High failed payment rates due to card expiration, cancellation, or cards getting lost, stolen, or declined by the customer’s bank
High risk of churn, which is common with expired cards
Standing order is another common method for taking regular payments. It allows businesses to collect money from a customer’s account on a set date, which seems very convenient. But there are some important points to keep in mind.
With a standing order, your customer instructs their bank to automatically pay your business a fixed amount at regular intervals. The customer controls the standing order; they set it up and choose the amount and frequency. They can change or cancel it without notifying you, making you dependent on them to get this right.
Low (often free) cost per payment received
Low risk of late payment once the standing order is up and running
No notifications - It can take over a month to discover failed payments. You’ll need to chase the customer to set up payment all over again
Less flexibility - Changing payment amount or date requires cancelling the standing order and convincing your customer to create a new one!
High risk of late payment - Many businesses struggle to get customers to set up their standing order quickly, or to amend it as required. This risks late payment
High admin - Constantly checking your bank to see if payment has arrived and then manually updating your accounts
And finally, that brings us to Direct Debit
With Direct Debit, your customer authorises you to collect money directly from their bank account whenever a payment is due. Direct Debit payments are flexible and can vary in frequency and amount. Unlike standing orders, you - not your customer - control the payments. You can also vary the amount and frequency of payment collections without any further authorisation from the customer.
We’re somewhat biased of course…but we think Direct Debit is the best of the bunch. What’s not to like about a payment method that’s low-cost, convenient and puts you in full control of your cashflow? And we’re working hard to revolutionise Direct Debit and make it even better.
The ultimate in Direct Debit - GoCardless
It may be the best, but there’s still room for improvement. At GoCardless, we’ve brought Direct Debit into the digital age, adding smart features to speed up your workflow and make the process of taking payments fully automatic.
Revolutionise your payment workflow with GoCardless
Use our pre-built integrations - with your existing accounting, billing, or membership systems
Create your own custom integration - using our powerful and flexible API
Keep a step ahead of churn - real-time notifications of failed or cancelled payments, plus no more expiring cards
Create advanced payment flows - re-tries, refunds and subscriptions: automate processes and configure logic around your needs.