I like giving money directly to the person for several reasons.
First, it gives them some freedom and respect. They don't have to go to an organization that might have a dehumanizing feel for them. Even if unintentional, some places set up to offer help can make people feel really uncomfortable. Even a person who thinks they're being helpful and kind can end up coming off in a condescending way, depending on their sense of things, and the sensitivities of the recipient. So I think it's worth alot for a person to be able to avoid that if they feel they need to. Even though $5 would go much further (in the way of providing food) at a soup kitchen, I like the idea of a person being able to choose to go (for example) to a diner, maybe buy the peace/privacy of stretching out a series of coffees, etc.
The person living this life also gets to choose what they need/want most right now. Maybe it's food. Maybe they need some something for a headache. Maybe there's something they really want that most donors/organizations wouldn't see as important enough, or even ill-advised. I like the idea that the person actually going through the homeless experience is the one who should get to choose what's most important to them, how they'd rather spend a little bit of money. There's so much comfort in having the opportunity to do that.
I think it's good for me to interact (albeit briefly) with the person. It's sometimes painful to see how bad things are for them, and I don't think I should be protected from that. I also like the fact that it forces me to find a way to hand money to a stranger without insulting their dignity. I struggled with that, and finally found a way I really like. I approach them quietly, but with the same tone I'd approach any other person, and hand them the cash, saying "excuse me sir, but I think you dropped this."
Really, I think both things are important: having services available that take organizational funding, and also doing things for people directly. They meet different kinds of needs, and most people have more than one kind of need.
[Edit: I should add that I don't give to panhandlers: I really hate being approached at all, and don't want to reward that. I generally give to people who don't approach me, but are in such clearly bad shape (tattered clothes, rotten teeth, usually with some sort of set up rigged for carrying their sad-looking belongings with them) that I don't think there's any question that they could use some of my money better than I could.]
