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# A Complete Guide to Bacs Payments

Wan Er
31/8/2023
14
mins

If you’re situated in the United Kingdom (UK), a foreigner trying to make money transfers within the UK, or a merchant receiving or sending payments to customers, you’ll need to know what a Bacs payment is.

In this article, we’ll provide you with a complete guide to Bacs payments — what they are, the types of Bacs payments, how to make a Bacs payment, and how long they take.

This article at a glance:

1. What are Bacs payments?

In a nutshell, Bacs payments are bank-to-bank transfers that you can do via a bank or a Bacs approved bureau.

2. What’s the difference between Bacs payment and CHAPS payment?

Most people get confused when they’re faced with Bacs and CHAPS payment methods. Read on to find out more on how these two common methods differ and which method suits you best.

3. Are Bacs payment transactions free?

Unfortunately, no. Bacs payments are not free as they cost between 5p to 50p, depending on your Bacs payment setup method.

## What is a Bacs Payment?

There are many ways to make payment within the UK, but one of the most common ways of making bank-to-bank transfers is using a Bacs payment. Bacs payments generally refers to the sending and receiving of payments in the UK.

To get you more up to speed on what a Bacs payment is, let’s first introduce what Bacs stands for. Bacs stands for the Banker’s Automated Clearing System. We’ll not go into the detailed specifics here, although you should know that Bacs refers to the entire network of banks and building societies that are part of Bacs payment scheme. Most of the banks in the UK are under participating banks of the Bacs payment scheme. However, just to be sure, check with your bank if they offer Bacs payments before you sign up for an account with them.

For businessmen and merchants, the ability to send money anywhere easily is important, because of how simple it makes the process of sending and receiving payments. You could be situated in the UK while your customer is situated in Singapore — you’ll still be able to receive payments via Bacs or CHAPS payment.

## When are Bacs payments used?

Bacs payments are primarily utilized by businesses in the UK, regardless of their size, to pay their employees' wages and salaries, as well as to pay their suppliers. However, it’s worth noting that Bacs is also a popular choice for recurring payments, such as one-time transfers. Here are some common examples of Bacs payments:

- Pension payments
- Employee expense reimbursements
- Insurance policy payments
- Dividend payouts
- Fees for subscriptions and memberships
- Charitable donations

## Pros and cons of Bacs payments

### Pros of Bacs payments

Bacs payments (Bankers' Automated Clearing Services) offer several advantages:

1. Cost-effective: Bacs payments are an inexpensive payment option as they do not involve intermediary banks or payment processors, saving both parties money and time.

2. Secure: It is a highly secure payment method. Bacs payments use strong encryption and security protocols to protect personal and financial information exchanged during the transaction.

3. Reliable: Bacs payments are highly reliable, with an accuracy rate of over 99%. Payments happen automatically, without the need for manual intervention.

4. Convenient: Bacs payments are a widely accepted payment method across the UK and can be used for various types of transactions. They offer great convenience to both individuals and businesses, as they can easily set up recurring payments or direct debits.

5. Faster processing: Bacs payments are typically processed within 3 business days, making them an efficient payment option when compared to other forms of payment like cheques.

### Cons of Bacs payments

There are several cons or disadvantages associated with Bacs payments.

1. Slow processing time: Bacs payments often take three to five working days to clear, which can be slower compared to other payment methods such as Faster Payments or CHAPS.

2. Limited transaction window: Bacs payments can only be processed on working days within a specific time frame. Anyone who misses the cut-off time will have to wait until the next processing day, which can cause delays in important transactions.

3. Lack of real-time tracking: Bacs payments do not provide real-time tracking, making it difficult for businesses to monitor their cash flow and reconcile their accounts quickly.

4. No guarantee of payment: Since Bacs payments rely on the payer’s bank account details, there is no guarantee that the payment will be successfully processed. The receiving bank might reject the payment if there are discrepancies in the bank details, causing delays and headaches for both parties.

5. No built-in security feature: Bacs payments lack an inherent security feature or authentication process. This makes it easy for payments to be made to fraudsters' bank accounts if banking details fall into the wrong hands.

## What is the difference between Bacs and CHAPS payment?

CHAPS is the UK’s bank transfer system that uses the SWIFT network.

Tip: If you’re unfamiliar with SWIFT, check out our guide on ﻿What is SWIFT﻿.

The main difference between Bacs and CHAPS is that CHAPS are usually used for one-time, high-value payments that need to be sent and received within the same day. For example, if you were paying for a property for your business, you’ll choose CHAPS over Bacs. Bacs payments, on the other hand, are used for high-volume but low-value transactions such as routine payments including employee salaries and payments to suppliers.

In a nutshell, they’re both bank-to-bank transfers, but you’ll choose Bacs payments if your transfer isn’t time-sensitive, and CHAPS payments if your transfer is urgent.

One thing to note though, is that the fees involved for CHAPS payments are much higher (£25-£35) compared to Bacs payments (5-50 pence) per transaction.

## Are there different types of Bacs payments?

There are two main types of Bacs payments — Direct Credit and Direct Debit.

Let’s dive into more details about each of these types of payments.

### Bacs Direct Credit

Also referred to as a ‘push' payment, a direct credit is when another party deposits money into your UK bank account. If you’re on the receiving end of the money, the payer could be your company, business partner or institution that deposits funds into your bank account directly. These funds could include your salary, wages, refunds, government benefits and more.

### Why Direct Credit?

- A versatile method for making one-time or recurring payments in a single or bulk format
- Have authority over the date of payment withdrawal from your account
- The recipient obtains cleared funds in their account on a predetermined date
- Recall errors within a designated timeframe with the bank’s consent

### Bacs Direct Debit

Also known as the ‘pull' payment method, a direct debit is when you, as a business owner, pull money from a customer’s bank account, with their approval of course. Instances that use a direct debit could be your monthly payments taken from your customer for a service, or recurring payments for a product.

### Why Direct Debit?

- An effective method for collecting regular payments
- Capable of collecting varying sums on non-uniform dates
- Enhance the rate of payment collection and ensure dependable cash flow
- The Direct Debit Guarantee safeguards customers against errors and fraudulent activities.

## ﻿

## How to make a Bacs payment?

Just like any bank-to-bank transfer, you’ll need to have the following handy.

1. The other party’s name, bank, account number and sort code
2. Your account number (which you’re withdrawing the money from)

To make a BACS payment, you need to follow the following steps:

1. Obtain the beneficiary’s bank details, including their sort code and account number.

2. Log in to your online banking account or visit your local bank branch.

3. Navigate to the "Pay or Transfer" section of your online banking portal or speak to a bank representative at the branch.

4. Select "BACS" as the payment method and proceed to input the benficiary’s bank details along with the payment amount.

5. Confirm the payment details, and once satisfied, proceed to authorize the payment.

6. Your bank will then send the payment request via BACS, which can take up to three business days to clear.

Please note that the process may vary slightly depending on your specific banking institution.

## How long does a Bacs payment take?

A typical payment — if you entered your bank and transfer details correctly — usually takes up to three working days to go through, for both direct credit and direct debit. Your bank will process the payment and ensure your details are filled in accurately before transferring the funds.

## How do businesses use Bacs payments?

Bacs payments are a versatile option suitable for a wide range of purposes, such as monthly license fees, regular donations, and salary and payroll processes. Regardless of the size or field of your business, you can enjoy the benefits of steady revenue and a robust cash flow through recurring payments. With Direct Debit, you can collect payments from customers at regular intervals, saving time on manual administrative tasks, reducing overheads, and improving cash flow. Customers can feel secure knowing they are protected by the Direct Debit Guarantee, which allows them to receive a refund from their bank if a debit is incorrect, or cancel the Direct Debit at any time.

## How much does a Bacs direct debit cost?

Collecting and sending Bacs payments are cheap, but don’t forget the fees involved with setting up direct debit directly with your bank. You’ll require Bacs-approved software which can be expensive. You can either set up your direct debit through a bank or via a Bacs approved bureau.

For setups via bank:

Setup fees: £5,000 (this includes the cost of Bacs-approved software, around £2495).

Transaction fees: between 5p — 50p + additional fees by banks

In order to set up direct access through a bank, you will need the ﻿﻿﻿Bacs approved Bacstel-IP software﻿﻿﻿.

For setups via a Bacs approved bureau:

Setup fees: £400 — £800

Transaction costs: 20p — 50p + monthly fees, submission fees, new mandate fees and penalty fees

For more information on Bacs approved bureaus, find out ﻿﻿﻿here﻿﻿﻿.

An easier method of sending and receiving payments

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## FAQs on Bacs payments

### Is a Bacs payment the same as a bank transfer?

Bacs payments and bank transfers are similar in that they are both electronic payment methods used to transfer funds between bank accounts. However, there are some differences between them.

Bacs payments are a specific type of bank transfer that is used for direct debit and direct credit payments in the UK. They are processed in batches and can take up to three business days to clear. Bacs payments are commonly used for recurring payments such as salaries, pensions, and supplier payments.

On the other hand, bank transfers are a general term for any type of electronic money transfer between bank accounts. Bank transfers can include Bacs payments, CHAPS payments, and Faster Payments, among others. Bank transfers can be used for a wide range of purposes, including one-time payments, international transfers, and bill payments.

So, while Bacs payments are a type of bank transfer, not all bank transfers are Bacs payments.

### Is Bacs and ACH the same?

Bacs and ACH (Automated Clearing House) are not the same but they are similar concepts. Bacs is the UK’s electronic clearing system, while ACH is the electronic clearing system used in the United States. Both systems are used to process electronic payments between bank accounts.

Bacs and ACH have similar functions and operate in a similar way. They are both used for direct deposit of salaries, pensions, and other regular payments. They are also used for direct debits to pay bills, such as utility bills or mortgage payments.

However, there are some differences between Bacs and ACH. For example, Bacs payments are processed in batches and can take up to three working days to clear, while ACH payments are typically processed on the same day or the next working day. Additionally, Bacs is only used in the UK, while ACH is used in the United States and several other countries.

Overall, while Bacs and ACH share some similarities, they are two separate and distinct systems used in different parts of the world.

### How long do Bacs payments take?

Bacs payments typically take three working days to clear into the recipient’s bank account.

### What is the Bacs payment system UK?

The Bacs payment system is a well-established electronic payment method used in the UK that ensures secure, efficient and reliable fund transfers between bank accounts. Bacs Payment Schemes Limited is responsible for managing the Bacs payment system, which is owned by major banks and building societies in the UK. The Bacs system is primarily used for bulk payments such as salaries, pensions, and supplier payments.

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