Recurring contribution (monthly) with 'Pay Later'

This extension solves your use case and was designed for that purpose and several other related ones:

https://github.com/adixon/ca.civicrm.contributionrecur

For example, you can track recurring offline payments (whether by bank transfer or other form of recurring payments that don't have a civi extension) by configuring it to auto-generate contributions for those offline payments. Then you just have a monthly reconciliation task to weed out the ones that didn't go through.

It supports both credit card and bank transfer offline recurring payments (using separate 'placeholder' type payment processors).

I have Offline recurring extension forked into my github account that supports for latest version of Civi. This extension allows one to create Contribution recur offline for check/cash payments/bank transfer etc. I think the same extension can also be supported to capture online pay later recurring contribution.

That error message is misleading! Payment Processors which implement Direct Debit can do recurring Contributions. iATS Payments extension (both legacy and 1stPay) implement recurring ACH. In addition there is a make it happen for Stripe extension that’s well on it’s way to get ACH implemented.

Here's a screenshot of a monthly donation by bank transfer - this is a CiviCRM native Contribution page.