BACS stands for Bankers automated clearing system, and it is the most popular method of clearing and settling payments within the United Kingdom. It is an electronic network participated in by the 16 main UK building societies and clearing banks, and is known to be the most cost-effective and streamlined way to transfer recurring payments. It is operated and managed by Pay.uk.
How does BACS work?
There are two main methods that BACS uses to handle payments, direct debit and direct credit.
Direct debit
For recurring bills such as subscriptions and monthly bills, Direct Debit is a cost-effective and efficient way for customers to manage outgoing costs. Behind cash and cards, Direct Debit is the third most common way to make payments in the UK. Direct Debit is very secure, as all businesses that collect Direct Debit payments need to agree to a guarantee which safeguards any lost payments. It’s a very flexible way for businesses to accept payments, allowing for one-off and invoice payments as well as recurring payments.
Direct credit
Direct Credit is also known as Bank Transfer, and is used by businesses to send regular payments, such as salaries or pensions. In fact, close to 90% of UK workers are paid using Direct Credit. Businesses opt for Direct Credit because it’s secure and straightforward, and reduces the administrative burden of manual payment methods. It’s also cheaper and more secure than sending cheques or using cash.
What is the current account switch service?
The Current Account Switch Guarantee or Service is a free service that individuals can use to switch an account holder’s current account from one bank or building society to another. It takes 7 working days, and is backed by a guarantee by all participating financial institutions. As part of the switch, all direct debits and other payment orders both in and out are transferred over, and a payment redirection will be set up for at least 3 years after the account has been switched over. More than 40 banks and building societies are part of this service.
What is the process of a BACS payment?
Each BACS payment runs on a three-day cycle. That means it will usually take three days for a BACS payment to be completed. On day one, the payment request is received, which needs to be completed between 7.00am and 10.30pm to be processed that day. Overnight, the information will be sent to the relevant bank. The information you’ll need to send a BACS payment is usually the name, bank name, account number and sort code for both your own account and the receivers.
On the second day, the payment request is processed. If the payment is accepted, the customer account will be debited, and if it is refused, this will be flagged as necessary. By day 3, if everything has run smoothly, the payment will be credited to the merchant’s account.
BACS vs CHAPS
If a three day cycle is too slow for business needs, organizations can use CHAPS payments instead where they are available. CHAPS stands for Clearing House Automated Payment System, and it is significantly faster, guaranteeing same day payment.
However, the cost of CHAPS is much higher. While a BACS payment via a bank has a base transaction fee of anywhere from 5p-50p, CHAPS transactions can cost from £15-£35 each.
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