In the UK, bank transfers from one bank account to another can take different forms, with the common methods being Faster Payments, CHAPS, and BACS. Of the three, BACS is the most popular and often used for Direct Debits and Direct Credit payments.
In this guide, we look into BACS, what it stands for, when they are used, the different types of BACS payments, transfer speeds, and costs involved. We’ll also cover how to make a BACS payment and everything else you need to know about this payment system.
BACS is a regulated payment system used by businesses in the UK to move money electronically from one bank account to another domestically.
BACS payments can either be made by Direct Debit or Direct Credit. In a Direct Debit arrangement, the payer having been notified in advance of the amounts to be withdrawn and the dates, instructs their bank to allow the beneficiary organisation to collect varying amounts from the paying account.
In a Direct Credit payment scheme, the payer instructs their payment service provider (PSP) to debit their account and directly credit the beneficiary’s account.
If you’re interested in domestic transfers, have a look at our domestic wire transfer guides.
BACS is an abbreviation for Bankers’ Automated Clearing Services. The BACS payment scheme is managed and run by BACS Payment Schemes Limited, a 16-member private limited company incorporated in the UK in 2003.
The company supports Direct Debit Scheme, Bacs Direct Credit Scheme, Cash ISA Transfer Service, as well as the clearing and settlement of funds. In 2018, BACS celebrated its 50th anniversary, and the system has so far processed over 6.44 billion transactions amounting to more than £4.96 trillion.
BACS payments are predominantly used by UK businesses, both large and small, to pay suppliers and employees’ wages and salaries. Having said that, most regular payments, including on-off transfers, are also settled via BACS. Here are a few examples of common BACS payments.
The following banks and financial institutions are participants of the Bankers’ Automated Clearing System:
BACS is a popular payment system, but certainly not the only one available for transferring money. Here is a summary of its pros and cons to help you decide whether or not it is the right option to help you transfer your funds.
BACS payments take 3 working days to clear. On the first day, the payment instructions are submitted to the BACS system and the second day is reserved for bank processing. On the third day, the payment is debited from the sender’s account and credited to the recipient’s account.
Making payments via BACS is considered one of the cheapest options on a per transaction basis compared to the wire transfer fees. However, other fees should be factored in depending on whether the payments are made through a bank or a BACS approved bureau. Here are the costs to expect.
Set up fees
To make BACS payments, you must first be set up on the system. If you choose to be set up for Direct Access via bank, you’ll have to invest in staff training, pay for BACS-approved software, and also pay an initial set up fee that can run into thousands of pounds – upwards of £5,000 . This option is for large organisations with huge volumes of recurring payments.
Alternatively, you can be set up to access BACS payments via a Direct Debit bureau. The bureau which essentially is a third-party organisation saves you the burden of handling BACS payments in-house. The initial set up fee for this arrangement is between £400-£500.
After the one-off initial set up, every payment you make incurs transaction fees. Banks charge anywhere from £0.05-£0.50 in transaction fees while BABs charge £0.20-£0.50 per transaction. The higher the volume of transactions, the higher the transaction fees.
Aside from the setup and transaction costs, there are additional fees including monthly fees, submission fees, penalty fees and mandate fees. Most of these fees also vary based on the volume of transactions, type of bank and whether there are payment cancellations and recalls.
BACS payment schemes can be categorised into two categories: Direct Debit and Direct Credit. Let’s briefly look at what they are and the differences between them.
This is a scheme where a customer pays regular or occasional amounts to an organisation at specified dates by giving advance notice to their bank to allow the organisation to pull or collect the payments directly from their account. The customer instructions are contained in a document called a Direct Debit Mandate form that stays with their bank. Direct Debit payments account for over £4.5 billion annually in transaction volume.
This payment scheme provides a simple and secure way of making and receiving payments directly into the beneficiary’s bank account. Currently, over 150,000 organisations use the BACS Direct Credit system. If you want to know more about safe bank transfers, check our guide: are bank transfers safe?
Depending on the nature of payments you want to make, you can opt for a Direct Debit payment arrangement or a BACS Direct Credit payment scheme.
Even though BACS is the most common payment arrangement, it is not the only electronic payment system available. As alluded to earlier in this guide, you can also consider using CHAPS and Faster Payments. Here is a summary of what is involved when using these payment methods.
CHAPS stands for Clearing House Automated Payment System. It is an electronic payment system that facilitates bank-to-bank transfers within the UK. Unlike BACS payments, the CHAPS system delivers payments the same day on condition that the instructions are received by the cut off time of 2pm.
This payment system is designed to handle high-value transfers such as property purchases and foreign exchange settlements. The scheme is currently being used by more than 5,000 financial institutions, including banks, and the cost per transaction varies between £25 and £30.
Introduced in the UK in 2008, Faster Payments is a payment scheme that takes less than 2 hours to complete. It is owned and managed by Faster Payments Scheme Limited – a membership organisation similar to BACS Payment Schemes Limited.
Transfers are capped at £250,000 per transaction and only participating banks can facilitate Faster Payments. At the moment, the scheme consists of 10 banks and building societies as the participating organisations. Typically, Faster Payments is used for small value transfers and supports mobile payments as well.
Like many other types of money transfers, to make a BACS payment you will need:
You can make a BACS payment through a bank – also known as direct access method – or through a bureau – commonly referred to as the traditional direct debit method.
1. Apply for a service user number (SUN): The application will be reviewed by the bank to ensure it satisfies the conditions set by the Direct Debit scheme. Approvals can take months.
2. Build technical in-house expertise: Since the direct debit collections will be managed in-house, you must have a technically competent team that collects, stores and submits payment information to the BACS system. Part of the resources needed to run the system is Direct Debit management software.
3. Submit your payment data: Once you’ve captured the beneficiary’s name, account number, sort code and the amount to be paid, you can submit the payment to BACS. Remember to include the payment reference to help the recipient identify what the payment is for.
1. Get a service user number: The bureau can either use a SUN specially set up for you or manage the submission and payments as an agent on your behalf using its SUN.
2. Prepare the excel submission file: The file typically captures the payee names, their account numbers, sort codes, amounts and payment references.
3. Submit the file: You can email or directly upload the file to your bureau. The bureau will then handle the rest of the submission to BACS and email you back with any failed payments so you can check and re-upload.
It is important to note that bureaus charge for failed payments. Therefore, ensure your payment instructions are clear and accurate.
BACS is a popular electronic payment system in the UK that allows businesses to transfer funds from one bank to another, or to receive money from elsewhere. The main payment schemes under BACS are the Direct Debit scheme and the BACS Direct Credit scheme.
The Direct Debit scheme allows an organisation to pull or collect payments from the sender’s account while the Direct Credit scheme allows a sender to push payments directly to payees’ bank accounts.
Businesses use BACS for making regular and occasional payments such as supplier payments, wages and salaries, pensions, dividend payments and so forth. Generally, the BACS payment system is time-efficient, cost-effective, safe, and guaranteed by the Direct Debit Guarantee scheme.
That notwithstanding, BACS payments are often slow and can take up to 3 working days to complete. If you want to make urgent transfers that don’t require steep set up costs or special software, you could look at specialist money transfer services or virtual banks. Other payment systems such as Faster Payments and CHAPS are also fast but are often costly and may not be universally available.
April is a journalist and Content Editor for MoneyTransfers.com. Over the last decade she has written for a range of online and print publications. Having lived overseas in Canada and Vietnam, April hopes to see more of the world as soon as possible, with Japan at the top of her travel list. She enjoys writing about forex trends and the future of banking.