What Is a BACS Payment?
Want to learn more about BACS payments and how they could benefit your business? Read through our thorough guide to BACS payments to find out more.
BACS is a form of electronic bank-to-bank transfer that is used exclusively in the UK. There are different transfer methods in the country, but BACS is the most popular and is mostly used for direct debit and edit transfers. Nine out of ten consumers in the UK use BACS payments for some form of regular payment.
What Does BACS Stand For?
The term BACS is short for the Bankers Automated Clearing System, which was founded by a committee for the Bankers Clearing House in London. The first transfer of funds electronically began in 1968. BACS later became a subsidiary of Pay.UK in May 2018 and that company is now responsible for direct debits. On its 50th anniversary, BACS had processed over 6.4 billion transfers, worth almost $5 trillion.
How Long Does a BACS Payment Take?
As competition heats up in electronic payments, the most common question about the BACS payment system is how long do they take? BACS payments usually take around three working days to clear. Payment instructions are submitted to the BACS system on the first day while the second day is reserved for bank processing. On the third day, the payment is then debited from the sender’s account and will be credited to the recipient’s account.
What Are the Two Main Types of BACS Payment Types?
If you're wondering what is BACS payment, there are two types: Direct Debit and Direct Credit BACS payments. These are the differences between the two:
Direct Debit
The direct debit system is popular in the UK for customers who want to pay regular or occasional amounts to an organisation at specified dates by signing an advance notice to their bank to allow the automatic collection. This is often arranged by an organization such as a gym for monthly memberships. The customer instructions are contained in a document called a Direct Debit Mandate form that stays with the bank. Direct Debit payments account for over £4.5 billion annually in transaction volume in the United Kingdom. Bank customers can terminate the agreement by calling their bank or doing the process online.
Direct Credit
The BACS direct debit scheme provides a simple and secure way to make and receive payments directly into a beneficiary’s bank account. There are currently over 150,000 organizations using the BACS Direct Credit system.
How Do You Make a BACS Payment?
In order to setup a BACS payment for regular payments you must get access to a direct debit mandate online or in paper form. Here you will enter your account details including sort code. Add the details of the organization you’re paying if its not already on the form. Confirm the start and end dates for the payments to start. Then submit to the bank.
Are There Fees Associated with a BACS Payment?
Banks charge anywhere between £0.05-£0.50 in transaction fees for BACS payments, with higher transaction volumes meaning higher transaction fees.
Can a BACS Payment Be Accepted at Any Time of Day?
BACS payments can be accepted at any time of the day, but it is important to note that each bank will have a cut-off time for when the instructions are accepted. If you submit the information late in the working day, the three day cycle could start the following day. BACS also works around the traditional banking system, and only working days will count on the three day payment cycle.
Is a BACS Payment the Same as a Bank Transfer?
A BACS payment is generally the same as a bank transfer, it is only used for regular payments, rather than a one-off payment. The BACS system uses the same information as a bank transfer for processing.
Why Do People Use BACS Payments?
BACS payments are often used by companies to pay salaries and benefits. They are also the preferred payment option used for pensions, employee expenses and many other payments/invoices. Retail businesses, charities and sports facilities are other examples of organisations that will use BACS for regular payments.
Risks Associated with BACS Payments
Overall, BACS is a very safe method of payment as it is facilitated by the major banks in the UK. The risks involved would be related to human error with the wrong information submitted, or attempts to take money from an overdrawn account. These issues would be ironed out with the help of the banks involved.
What Is the Maximum Amount You Can Pay Using a BACS Payment Method?
Using Barclays Bank as example, the daily limit for third-party payments and standing orders is £50,000. However, companies could adjust the dates to pay that limit on consecutive days.
Can Anyone Make a BACS Payment?
BACS payments are generally used by businesses who need to make, or take, regular monthly payments. Anyone with a UK bank account or a payments account like Payset can make a BACS payment.
What Information Is Required to Make a BACS Payment?
BACS payments require the beneficiary’s name, account number, sort code, and the amount to be paid before they are submitted. A payment reference is also advised to help the recipient identify what the payment is for.
What Is a SUN and Do You Need One to Make a BACS Payment?
A BACS Service User Number (SUN) is a unique identifier given to trusted businesses to make payments with BACS approved software. BACS payments use SUN numbers to distinguish between organisations collecting payments with the Direct Debit system.
It is not necessary to have one as it requires sponsorship from a bank. Smaller businesses that have been established for fewer than three years, have an annual turnover of less than £1 million and make minimal BACS payments, will not require a SUN.
What Are BACS Reports?
BACS reports are provided by the BACS service and provide historical details on your submissions. The report will include Credit payments, Direct Debit collections and Direct Debit Instructions. There are multiple reports produced by the BACS service and each different report provides different information.
What Are Some Alternatives to BACS Payment Methods?
Two other forms of payment used in the UK are the CHAPS transfer and Faster Payments. Most high-street banks are participants in CHAPS and the system guarantees same-day payment. This is dependent on the bank receiving payment instructions by a specific time during the working day. There is no limit to the size of the transfer you can make with CHAPS and in most cases they are worth over £10,000.
Faster Payments offer almost real-time payments between bank accounts in the UK, although they are usually restricted in the size of transfer that you can make.
Advantages and Disadvantages of the BACS Network
Advantages:
- BACS payments are the cheapest method for sending payments.
- All commercial payroll software supports BACS files.
- The BACS system is supported by a trusted organization and major banking institutions.
Disadvantages:
- Payments need three days to clear, unlike Faster Payments, which are immediate.
- BACS payments will only clear during business days.
- The cut-off times can be restrictive. A payment for Friday would require processing before Wednesday 3 pm.
Common questions about BACS
Is BACS the same as a bank transfer?
A BACS payment is similar to a bank transfer, as you need the payee’s name, sort code, and account number to send money. However, the key difference is that repeating payments can be made with BACS without the need to input the information again, making it easier for regular expenses or payees.
Is BACS just the UK?
Yes, BACS, CHAPS, AND Faster Payments are UK-only payment systems.
What is the difference between SEPA and BACS?
SEPA stands for Single Euro Payments System and is a European payment standard for European Union countries.
Can BACS be used for international payments?
BACS is designed as a business-friendly system to smooth recurring payments for things such as payroll in the United Kingdom. It is a UK-based clearing system and, therefore, not available for overseas countries.
Which country uses BACS?
The United Kingdom uses BACS.
Which banks use BACS?
All major financial institutions in the UK use BACS, and it can also be used by companies and online banks. However, an application process is required to send payments.
Does BACS use SWIFT?
SWIFT, or Society for Worldwide Interbank Financial Telecommunications, is a system for international money transfers and is used by 11,000 institutions in 200 countries. BACS is a domestic transfer system and is only used for UK payments.
Can anyone pay by BACS?
BACS requires an application system to allow payment by BACS. This is not suitable for small businesses or one-off payments. It is designed to be used by larger businesses for payroll and recurring expenses. Smaller online banks may use a third-party BACS member to process their payments with BACS.
Why do people still use BACS?
BACS is a safe system for clearing payments and is trusted by major institutions and companies in the UK. Corporations trust that regular payments will be processed and arrive on time.
Why do people pay by BACS?
BACS has been a respected system for payments and has grown over the last two decades. Companies trust BACS for recurring payments, and with designated payroll departments, the three-day processing is not a deterrent.
Frequently asked questions
What is a multi-currency account/virtual IBAN?
A Payset multi-currency account allows you to receive money in 34 different currencies and send money in up to 38 currencies, all within the same account.
You can deposit and withdraw funds, convert currencies at competitive exchange rates, and hold your chosen currencies to capitalize on market movements.
A Payset multi-currency account allows startups and business owners to receive payments from clients virtually anywhere in the world and pay suppliers, staff, and contractors quickly and affordably in their chosen currency.
- Funds can be deposited and withdrawn from the account for a small fee.
- Account holders can send and receive money with other Payset users for free.
- Depending on your region, you can use various payment networks from your Payset account, including SWIFT, SEPA, ACH, Fedwire, Faster Payments, BACS, and CHAPS.
- Once you register an account, you will be provided with a Virtual IBAN (International Bank Account Number), which makes all of these transfers easy.
- We provide you with local payments and collections. For example, transactions in USD, EUR, CAD, and GBP are processed through the local payment networks, which is far cheaper and takes minutes as opposed to days
Are there limits on the amount of money I can send and receive?
No, there are no transaction limits on Payset multi-currency accounts.
However, higher-volume transactions may require additional anti-fraud verification. If you plan to make a large transaction, contact us in advance to avoid verification delays.
How is Payset regulated?
Payset allows you to receive payments in 34 currencies. You can send payments from your account in 38 currencies. For more details, check our payment guide.
How do I add money to my account?
How do I send money from my account?
Once you have opened your verified IBAN account and added money to a balance, transferring funds is simple.
Simply log in into your account and add a beneficiary, then simply “make a transfer” in your preferred currency to that beneficiary.
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