Understanding BACS payments: a comprehensive guide

A BACS payment is an electronic transfer of money made between banks in the UK. As one of the most popular and efficient methods of moving cash, it’s become a hugely important aspect of the financial world, with over 140 billion transactions carried out since it was established.

BACS stands for Bacs Payment Schemes Limited now but was originally known as the  Bankers’ Automated Clearing System. This process was introduced in the late 1960s to avoid the delays and paperwork involved in using cheques as a bank payment system. 

Read on to find out how BACS transfers work, the BACS payment meaning, and what benefits they offer when compared to other banking methods.

What are BACS payments?

The BACS system is a safe, trustworthy process for sending money between banks in the UK. It is a fast, digital process that’s heavily regulated and offers clients a high degree of convenience. There are two different ways that you can make a BACS payment – direct debit and direct credit.

BACS direct debits

A BACS direct debit occurs when a customer authorizes their bank to allow a company to take money from their account. It is often done to cover recurring payments such as mortgages, insurance, or rent. BACS direct debit payments will be withdrawn from the account periodically until the authorization is canceled or the payments end. It can help business cash flow as the money is scheduled to arrive regularly.

BACS direct credits

BACS direct credit payments are used by many British organizations to pay money directly into the bank accounts of their customers. This BACS direct credit process is widely used for bank payments such as salaries, pensions, and refunds.

BACS vs. Faster Payments

Faster Payments (FPS) have a lot in common with BACS transfers, but there are some crucial differences. The most notable is the speed with which the money arrives at the beneficiary’s account. A BACS payment through direct debit or direct credit usually takes three working days to go through to the receiving bank account, but Faster Payments are received almost instantly.

Both these transfer methods are owned by Pay.UK. BACS payments are still widely used by government agencies, large multinationals, and other organizations that follow strict processes in terms of bank transfers. Faster Payments are more likely to be used by smaller companies such as online retailers.

A BACS payment can prove to be more efficient and cost-effective for companies that send a lot of bank transfers, as they’re grouped in batches before being sent. On the other hand, an FPS transfer is a good option that carries out a limited number of bank transactions and wants them to go through quickly each time.  

BACS vs. CHAPS

The CHAPS (Clearing House Automated Payment System) is another way of sending money between banks in the UK. It differs from the BACS payment method in that it’s used for same-day, one-off payments, which are similar to a BACS direct credit but faster. The deposit or payment made for a house purchase is a good example of when this payment system is typically a better option than BACS to get something paid the same day.

While CHAPS transfers are faster than a BACS payment, they also tend to cost more to process. It means that a CHAPS payment is most commonly used for large, one-off bank payments that need to arrive swiftly. A BACS payment transfer can be used for smaller transfers like pensions and recurring payments that aren’t so urgent.

How BACS payments work

The customer completes the authorization to make a direct debit, and the organization receiving the payments sets it up. A direct debit payment schedule is then started, with the amounts to be collected from the bank account and the dates for executing it.

To make a BACS direct credit payment, the payee needs the name, bank account, and sort code of the receiving party. Salaries, pensions, and other direct credit monthly payments get paid smoothly each time, provided that the organization’s payment details are kept up to date.

How long does a BACS payment take?

A BACS payment takes three working days to go through and begins with a payment being submitted to the BACS platform on the first day.

On the second day, the financial institution processes the BACS payment. On the third day, the funds are transferred to the receiving account, so the receiving bank account gets the funds deposited.

Cost of BACS payments

The BACS cost varies according to the amount and the banks involved. However, this fee is extremely small and normally only runs to a few pennies in each case. 5p to 50p is the most common fee range for this kind of bank-to-bank transfer. The account receiving payments isn’t charged any fee.

Benefits of using BACS payments

The BACS electronic payment system provides a range of benefits as a payment method. This applies to both automated payments on a recurring basis and one-off transfers through direct debits and direct transfer methods.

Cost-effectiveness

The low cost of BACS payments makes this a cost-effective way of making bank transfers and getting bills paid. UK businesses can make payments directly or get paid regular payments without increasing their overheads or large bank charges.  Both direct debit and direct credit methods are low-cost. 

Reliability and security

Using BACS is a safe way to submit payments and make a direct credit transfer to a customer while avoiding scams. The banks that use this system have to use BACS-approved software that ensures that validation and encryption are completed. All users of the BACS system need to comply with the current regulations to make or receive payments by direct debit or credit.

Streamlined financial operations

BACS is a slick payment system that helps the UK business world operate smoothly by giving a way to move money easily between banks and other financial institutions.  A few basic account details are needed to make a transfer: sort code, account number, and account holder’s name. The direct debit system allows companies to receive regular payments effortlessly.

Convenience

The BACS transfer method is a highly convenient way of making electronic payments for a range of different reasons. Whether it’s for collecting payments, making supplier payments, or paying household bills by direct debit, it’s a process that makes banking easier for everyone who uses it. The BACS-approved bureau scheme lets third parties make payments on behalf of others, adding to the convenience for smaller businesses.

Access BACS and other transfers inside Genome

Are you interested in BACS and other money transfer options within the UK, EU, and internationally? You can access international money transfers once you start a business account inside Genome.

Set up a business account, and you’ll be asked to carry out a short online verification process. Once your account is set up, you can find out if your business is eligible for international transfers and request account details.

Our international money transfer options include SWIFT, Faster Payments, TARGET2, BACS (incoming only), and CHAPS. Additionally, you can make regular and instant SEPA payments!

Key takeaways

The BACS payment process is vital in the modern finance world, giving UK businesses and consumers a reliable, fast way of moving money from one bank account or building society account to another.

Direct debit and direct debit transfers provide easy ways to make a safe bank transfer using just a few basic payment details. The Bankers Automated Clearing System provides a trustworthy payment service that banks and building societies have been using for decades. It gives confidence to pay and receive payments. 

Our compliance with all the latest payment security measures means that we keep your business safe at all times. Use Genome, and you’ll enjoy efficient and secure financial management that meets all your payment needs with no fuss.

FAQs

Can BACS payments be made internationally?

No, the BACS payment system is for direct credit and direct debit transfers from one UK bank or building society to another. You can make a BACS payment to virtually any British bank or building society, but IBAN or international transfers are needed to send money to a bank account abroad. 

Are BACS payments safe and secure?

Yes, these bankers’ automated clearing services are highly trusted as a way of moving funds and making business payments. It’s used to make pension payments, pay loans on time, and carry out a full range of other financial transactions effectively. 

How do I cancel a BACS payment?

The process for canceling a BACS payment varies according to the stage of the three working days process. They can be canceled before the cut-off time for submission to the bank before being executed or credited. Once sent to the receiving account on the third day, a recall can be requested. But success at this stage isn’t guaranteed.

Is there a maximum or minimum limit on BACS payments?

There is no minimum limit on the amount of a BACS bank transfer through direct debits of direct credits. In terms of the maximum BACS payment amount allowed, you might see $20 million mentioned. The exact limit is determined by each bank and may vary by the type of account or transfer.

How can I track a BACS payment?

A BACS payment can be tracked by contacting the organization that sends the payment request or by getting in touch with the payment service provider. Understanding the three working day process that every BACS bank transfer goes through will allow you to appreciate when it should leave one bank and reach the other.