If you’re new to the payments industry or a finance team processing Bacs payments for the first time, understanding the basics of Bacs and Bacs payments is essential.
We take a look at the most commonly asked questions around Bacs and Bacs payments to help you get started.
What does Bacs stand for?
Bacs stands for ‘Bankers Automated Clearing Service’ and is the electronic system used to make payments directly from one bank account to another. Bacs was founded in 1968 but became a subsidiary of Pay.UK (the UK’s leading provider of payments infrastructure) in 2018.
What is a Bacs payment?
A Bacs payment is a bank-to-bank transfer between banks in the UK. There are two types of Bacs payments in the UK, depending on whether you want to take payments or make payments:
| Type | Purpose | Who Initiates | Example Uses |
|---|---|---|---|
| Bacs Direct Debit | Allows a business to pull funds (after mandate) | Creditor (business) | Subscriptions, utility bills, membership fees |
| Bacs Direct Credit | Allows a payer to push funds to another account | Payer | Salary, supplier payments, refunds |
1. Direct Debit
An instruction from you to your bank or building society. It authorises the organisation you want to pay to collect varying amounts from your account – but only if you’ve been given advance notice of the amounts and dates of collection. For example, a monthly gym membership.
Direct Debit is the most efficient way for many small and large businesses to collect payments from their customers.
Once set up and authorised by the customer, the Direct Debit system allows businesses to draw payments directly from the bank accounts of their customers. This authorisation 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.
2. Direct credit
Direct credit is more commonly known as a ‘bank transfer’ and is used to make payments directly into a bank account. The payment is initiated by the payer, which sends funds directly into the bank account of the payee.
Direct Credit is most commonly known for wages and salary payments it can also be used for a wide range of other applications such as employee expenses and refunds.
Bacs Direct Credit is a simple, secure and reliable way to make and receive payments by electronic transfer directly into a payment service provider 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.
These Bacs payments are usually the cheapest way of making multiple payments, especially when compared to taking card payments or making payments through other automated methods.
How long does a Bacs payment take and what do you need?
Both Bacs Direct Credit and Direct Debit payments take three working days to clear:
- Day 1 : payment file being submitted to the Bacs system, prior to a cut-off time
- Day 2 : the file is processed by the bank
- Day 3 : the payment is credited to the recipient’s bank account.
To carry out both types of Bacs payments, you will need the other party’s:
- bank details, (specifically their name)
- bank’s name
- account number and sort code
What are the benefits of using the Bacs payment system?
The benefits associated with the Bacs payment system include:
- Availability – Anyone with a UK bank account can pay by Bacs. This includes UK businesses.
- Retention – There are no card expiry dates associated with the Bacs system, so there’s no need to collect new payment details when a debit or credit card expires.
- Low cost – Bacs payments are made directly between the banks so you can avoid the UK’s expensive credit and debit card networks. The one drawback of the Bacs system is that the payments will not be cleared and in your account instantly, which could make them unsuitable for a small proportion of UK businesses.
Are there other similar payment methods?
| Bacs | Faster Payments | CHAPS | |
|---|---|---|---|
| Settlement time | 3 working days | Nearly instant / within hours | Same day (if before cut-off) |
| Cost per transaction | Low (pence) | Usually higher | High (often £25-£30) |
| Suitable for | Recurring / batch payments | Urgent transfers, smaller amounts | High value / urgent same-day transfers |
| Use cases | Payroll, Direct Debit, vendor payments | Urgent transfers, top-ups | High-value business payments |
In addition to Bacs payments, there are two other types of bank-to-bank payments.
1. CHAPS
CHAPS (Clearing House Automated Payment System) is a bank transfer where there is no limit as to how much money can be sent. Payments made via CHAPS are usually over £10,000 in value. Payments can be made within one working day which is handy if you want to offer quick delivery times or need to deliver a service to a short time frame.
2. Faster Payments
This form of payment normally clears within two hours, if both the banks involved are part of the Faster Payment Service. If one of the banks is not part of this service, the payment will automatically be processed as a direct credit Bacs payment instead.
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 difficult and not guaranteed.
If you’re interested in regular or one-off payments Bacs payments, speak to London & Zurich today. We will talk you through your options and help you understand your payment options.
Frequently Asked Questions about Bacs Payments
1. What is the difference between Bacs and a bank transfer?
Bacs payments are processed through the Bacs network and take up to three working days, while a standard bank transfer via Faster Payments is usually instant.
2. Is Bacs real-time?
No, Bacs is not real-time. Payments typically take three working days to process from submission to settlement.
3. Can I use Bacs internationally?
No, Bacs is only for UK bank accounts and cannot be used for international payments.
4. How do I become a Bacs user / access the Bacs network?
To use Bacs, your business needs a Service User Number (SUN), which is issued by your bank or through a Bacs-approved bureau.
5. Can I change a Direct Debit once set up?
Yes, you can change or cancel a Direct Debit at any time, but you must notify the payer and your bank before the next collection.
6. How secure is Bacs?
Bacs is highly secure, using encrypted files and bank-level authentication to protect transactions.
7. What happens if a payment fails?
If a Bacs payment fails, the bank will return the transaction to the sender, and you or your provider must contact the payer to resolve the issue.
