A Complete Guide to Bacs Payments
If you’re situated in the United Kingdom (UK), a foreigner trying to make money transfers within the UK, or a merchant receiving or sending payments to customers, you’ll need to know what a Bacs payment is.
In this article, we’ll provide you with a complete guide to Bacs payments — what they are, the types of Bacs payments, how to make a Bacs payment, and how long they take.
This article at a glance:
1. What are Bacs payments?
In a nutshell, Bacs payments are bank-to-bank transfers that you can do via a bank or a Bacs approved bureau.
2. What’s the difference between Bacs payment and CHAPS payment?
Most people get confused when they’re faced with Bacs and CHAPS payment methods. Read on to find out more on how these two common methods differ and which method suits you best.
3. Are Bacs payment transactions free?
Unfortunately, no. Bacs payments are not free as they cost between 5p to 50p, depending on your Bacs payment setup method.
What is a Bacs Payment?
There are many ways to make payment within the UK, but one of the most common ways of making bank-to-bank transfers is using a Bacs payment. Bacs payments generally refers to the sending and receiving of payments in the UK.
To get you more up to speed on what a Bacs payment is, let’s first introduce what Bacs stands for. Bacs stands for the Banker’s Automated Clearing System. We’ll not go into the detailed specifics here, although you should know that Bacs refers to the entire network of banks and building societies that are part of Bacs payment scheme. Most of the banks in the UK are under participating banks of the Bacs payment scheme. However, just to be sure, check with your bank if they offer Bacs payments before you sign up for an account with them.
For businessmen and merchants, the ability to send money anywhere easily is important, because of how simple it makes the process of sending and receiving payments. You could be situated in the UK while your customer is situated in Singapore — you’ll still be able to receive payments via Bacs or CHAPS payment.
What is the difference between Bacs and CHAPS payment?
CHAPS is the UK’s bank transfer system that uses the SWIFT network.
Tip: If you’re unfamiliar with SWIFT, check out our guide on the 17 Key Business Terms That Every International Merchant Should Know.
The main difference between Bacs and CHAPS is that CHAPS are usually used for one-time, high-value payments that need to be sent and received within the same day. For example, if you were paying for a property for your business, you’ll choose CHAPS over Bacs. Bacs payments, on the other hand, are used for high-volume but low-value transactions such as routine payments including employee salaries and payments to suppliers.
In a nutshell, they’re both bank-to-bank transfers, but you’ll choose Bacs payments if your transfer isn’t time-sensitive, and CHAPS payments if your transfer is urgent.
One thing to note though, is that the fees involved for CHAPS payments are much higher (£25-£35) compared to Bacs payments (5-50 pence) per transaction.
Are there different types of Bacs payments?
There are two main types of Bacs payments — Direct Credit and Direct Debit.
Let’s dive into more details about each of these types of payments.
Bacs Direct Credit
Also referred to as a ‘push' payment, a direct credit is when another party deposits money into your UK bank account. If you’re on the receiving end of the money, the payer could be your company, business partner or institution that deposits funds into your bank account directly. These funds could include your salary, wages, refunds, government benefits and more.
Bacs Direct Debit
Also known as the ‘pull' payment method, a direct debit is when you, as a business owner, pull money from a customer’s bank account, with their approval of course. Instances that use a direct debit could be your monthly payments taken from your customer for a service, or recurring payments for a product.
How to make a Bacs payment?
Just like any bank-to-bank transfer, you’ll need to have the following handy.
- The other party’s name, bank, account number and sort code
- Your account number (which you’re withdrawing the money from)
How long does a Bacs payment take?
A typical payment — if you entered your bank and transfer details correctly — usually takes up to three working days to go through, for both direct credit and direct debit. Your bank will process the payment and ensure your details are filled in accurately before transferring the funds.
How much does a Bacs direct debit cost?
Collecting and sending Bacs payments are cheap, but don’t forget the fees involved with setting up direct debit directly with your bank. You’ll require Bacs-approved software which can be expensive. You can either set up your direct debit through a bank or via a Bacs approved bureau.
For setups via bank:
Setup fees: £5,000 (this includes the cost of Bacs-approved software, around £2495).
Transaction fees: between 5p — 50p + additional fees by banks
In order to set up direct access through a bank, you will need the Bacs approved Bacstel-IP software.
For setups via a Bacs approved bureau:
Setup fees: £400 — £800
Transaction costs: 20p — 50p + monthly fees, submission fees, new mandate fees and penalty fees
For more information on Bacs approved bureaus, find out here.
An easier method of sending and receiving payments
Bank transfers are simple, but the extra costs for Bacs payments aren’t worth it if you’re a small business trying to transact with your UK clients or customers, especially with fluctuating forex rates and different bank fees. At Silverbird, we offer you a smart alternative to traditional banking.
Hold, transfer and exchange foreign currencies online simply by using a single account. In order to avoid facing unfavourable forex rates when transferring your funds, we offer multi-currency accounts catered to international merchants like yourself, so that you can convert over 30 currencies within a single account.
Start onboarding today.