A simple guide to Bacs and Bacs Payments

‘Bacs’ means ‘Bankers Automated Clearing Services’ or in simple terms, a way of transferring money electronically and automatically between banks.

There are two types of Bacs payments in the UK, depending on whether you want to take payments or make payments.

Direct Debit

Direct Debit is used to take pre-authorised payments from a bank account.

Customers need to give permission for an organisation to take money from their account in this way in advance. This can be done online or by filling in a paper form (known as a mandate).

Direct Debit is a safe way to make payments for customers as it is underpinned by a guarantee in case of payment errors or fraud.

For businesses, Direct Debit offers a low cost solution to taking payments and can reduce the chances of missed, late or failed payments.

The amount of money taken through Direct Debit and the date when payments are made can be varied, although advance notice must be given for this.

Direct credit

Direct credit is more commonly known as a ‘bank transfer’, and is used to make payments directly into a bank account.

It’s a straight-forward way for businesses to pay staff or suppliers and can hugely cut down on admin costs compared to other methods such as paying by cash or cheque.

Direct credit also gives you more control of when money is leaving your bank account, as you decide when to authorise a payment.

Making Bacs payments

Bacs payments can be made between any UK bank accounts.

To carry out both types of Bacs payments, you will need the other party’s bank details, specifically their name, their bank’s name, the account number and sort code.

Both Bacs Direct Credit and Direct Debit payments take three working days to clear, and are usually the cheapest way of making multiple payments, especially when compared to taking card payments or making payments through other automated methods.

Other similar payment methods

In addition to Bacs, the other two types of bank to bank payments in the UK are ‘Faster Payments’ and ‘CHAPS’. Both can only be used to make payments, and although they are quicker than using Bacs, both typically incur higher costs and have other limitations.

The advantage of Faster Payments is in the name – payments normally clear within two hours if both the banks involved are part of the Faster Payment Service.

However, if one of the banks is not part of this service, the payment will automatically be processed through Bacs instead as a direct credit, and will therefore take three working days.

Not all banks are part of the service, and payments cannot be made using all types of bank account (for example savings accounts).

CHAPS or ‘Clearing House Automated Payment System,’ is a method of transferring high value funds between banks- there is no limit on how much money can be sent in this way. Although payments are usually made within one working day, banks charge a relatively higher fee for each transfer, which makes it an expensive way to make frequent, lower value payments.

The speed of transactions for both CHAPS and Faster Payments, clearly has its advantages, however it also means that cancelling payments through these methods is also difficult and not guaranteed.

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