What are BACS and CHAPS payments?

What are BACS and CHAPS?

BACS stands for Bankers Automated Clearing System which is used for sending money electronically from one UK bank to another. It is used for paying salaries, direct debits and other regular payments and it typically takes 3 working days for the transfer to complete.

CHAPS stands for Clearing House Automated Payment System and is a faster way to transfer money than BACS. The transfer is normally completed on the same day. There is however usually a charge for this service which varies depending on which bank you use.


What’s the difference between BACS and CHAPS?

The main difference is the maximum size of the transaction, and speed.

For big payments, CHAPS is often the preferred payment method. They have no limit on how much you can transfer and you’ll benefit from same day processing and clearing. This makes CHAPS ideal for large, time-critical purchases, such as a house deposit or buying a new car.

BACS transfers money directly between bank accounts and is mostly used for smaller transactions such as monthly wages being paid to employees, payments to suppliers and debt repayments. Because it is meant for use with lower value transactions, BACS enforces a ceiling of £250,000 per unique transfer and the fees per transaction are very low, certainly compared to CHAPS.


Is BACS or CHAPS better for your business?

It all comes down to which kind of service you need to use the most for your business. If it involves lots of low-value transactions, then BACS will be the best system to use.

But for much larger one-off payments CHAPS will be the preferred system. If having an immediate clearance time is also important, then things are better paid through the CHAPS system.

You don’t necessarily have to choose one over the other, however. Many companies use BACS to pay employees and suppliers, and then use CHAPS for the occasional big payment.


How much do Bacs and CHAPS cost?

BACS payments are one of the cheapest ways to transfer funds between bank accounts. They can be extremely cheap if you are able to get sponsorship directly from a bank and obtain your own Service User Number (SUN) which let’s you access the BACS network. However, this can be very difficult, especially if you are a small business. Also, there’s the cost of obtaining BACS approved software and setting that up.

If you are unable to secure your own SUN with the bank, the alternative is to work with a Direct Debit Provider, such as London and Zurich, to gain access to Direct Debit payments. The benefits of this are that you don’t need to worry about sourcing your own SUN and BACS approved software, and we can get you ready to start collecting payments quickly and without much effort. There will be costs associated with collecting each Direct Debit, but these are usually very cheap – around 30p per transaction or a set 1% fee of each total transaction.

For CHAPS payments, there is usually a £25 to £30 charge applied to each payment, depending on the bank.


Start collecting Direct Debit payments today

At London and Zurich we help businesses collect Direct Debit payments without hassle – it’s easy to set up and our software makes collecting large volumes of Direct Debit payments incredibly simple.

Contact us today to get started – click here

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