B2B Payments

Why UK Businesses Like Direct Debit Payments

heck use by businesses to pay other businesses is on the decline in the UK given the recent, and somewhat surprising, use of Direct Debit for B2B payments. It’s seen as a safe and cost effective way to make a payment and improve cash flow.Learn more about the changing attitude towards direct debit and what it could mean for other B2B markets.

The UK is quickly following the EU in adopting direct debit payments for business use, with businesses recognizing that with the right management process in place, the rewards beat the risks. Now, over 25% of B2B payments are being made via Direct Debit, reflecting the changing attitudes and reduction in use of checks.

In 2013, more than 3.5 billion transactions were made with a total value of £1.1 trillion and there is still great room for growth in number and volume of transactions in 2014.


Late Bill Payment in the UK

In a recent study of private business, 23% of small companies noted that despite the improving economy, they saw an increase in the number of late payments. Only 3% of companies notice da decrease. In addition 29% said that they saw in increase in the number of days beyond the deadline tat the payment was made.

Phil Orford, the chief executive of the Forum of Private Businesses, said: “Improving cash flow is the likely cause for late payment issues remaining static, despite lengthening payment terms. However, upwards of £30bn remains tied up in late payments, costing a typical small business 130 hours a year to chase and meaning that a third are forced to seek external finance to cover the gaps in cash.”

The amount of time, money and energy is tying up small businesses in the UK from developing their businesses and disrupting cash flow.


Direct Debit Growth and Increased Benefits

Increased transparency into cash flow, knowing when payments are scheduled to come in and come out, and the cost of processing checks has led to an increase in Direct Debits in the UK.

Rather than waiting for the postman to come for a check payment or waiting for a Bacs payment (typically 35 to 90 days after an invoice has been generated) a businesses can set up Direct Debit collection to build a more accurate cash flow forecast. The UK check deposit system takes six days to clear the system, creating huge delays.

In addition to saving time, the use of Direct Debit reduces the manual labor required to gather payments, bring them to the bank and wait for them to clear the system. In the US where remote or mobile check deposit has been available for years, the offering is just beginning to enter the market in the UK, starting with Barclays Bank.

Another benefit in the use of Direct Debit is the improved relationship between partners as it reduces friction on both ends of the equation.


Reduction of Checks Leaves Room for Direct Debit

The Cheques & Cheque Clearing Report noted that a 2012 report determined that while “checks do remain important to many businesses, they increasingly preferred not to be paid by checks and are increasingly more willing to request that payers do not pay them by checks.” Business check use peaked in 1997 and with the increased adoption of Direct Debit; it is expected to continue to decline.

A few years ago, the UK banking industry planned to phase out the use of checks by 2018, but their attempts were thwarted by a general backlash. Perhaps in a few more years with the further development of direct deposit, the use of checks will disappear on their own and be met by a surge in direct debit payments.





The September 2020 Leveraging The Digital Banking Shift Study, PYMNTS examines consumers’ growing use of online and mobile tools to open and manage accounts as well as the factors that are paramount in building and maintaining trust in the current economic environment. The report is based on a survey of nearly 2,200 account-holding U.S. consumers.

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