What is a Bacs Payment?
A Bacs payment, also known as Bankers Automated Clearing Services, is one of the most well-known types of bank transfer in the UK.
If you’ve ever made a direct debit payment or been paid by direct credit you will have used the Bacs payment service.
It’s very common and it’s the way most payments are made in the UK, alongside the faster payments service, and CHAPS payments.
The Bacs payment system was introduced in 1968 and it is a membership-based industry body, owned by 16 leading banks and building societies.
There are two main types of Bacs payment, direct debit and direct credit, and in this guide we explain everything you need to know about both.
What is a Bacs payment?
There are two types of Bacs payment, direct debits and direct credits.
- Direct Debit
A direct debit is a payment which is set up by a customer to authorise their bank to pay another person or company. They are commonly used for paying household bills, such as a monthly energy bill. When they are set up, a Direct Debit Mandate is signed and this gives the company permission to take a sum of money from the bank account. Direct debit payments aren’t automatic, instead they usually take up to three days for the money to be available.
- Direct Credit
Direct credit payments are usually used when a sum of money is regularly transferred from a UK business into a bank account. For example, these payments are often used for paying employee wages, pensions, and state benefits. They’re so common in fact that eight in 10 employees in the UK receive wages or salaries this way. In the same way as direct debit payments, they take three working days to clear before the money can be spent.
How long does it take for money to be available?
When a Bacs payment is made the money won’t be available to spend immediately. Instead they take three working days from the money leaving one account to being cleared and therefore ready to use in another account.
If you’re expecting a payment which has been made via Bacs you will usually see it available in your account first thing if it’s going to arrive that day. For example, if you’re paid on the 30th of the month your employer will usually make this payment on the 27th of the month and it should appear in your account ready to use on the 30th.
Who can use a Bacs payment and what are they for?
Anyone can use a Bacs payment and they are one of the most common ways of making or receiving a payment in the UK. Whether it’s paying for a monthly TV subscription or phone bill or receiving your pension, you’ve probably already made, or received, a payment in this way before.
How do Bacs payments work?
How a Bacs payment works depends on the type of payment.
- Bacs Direct Debit
If you set up a direct debit, you are authorising a company to take money from your bank. In order to do this the company will need your name, the name of your bank, your sort code, and bank account number.
- Bacs Direct Credit
With this type of Bacs payment, a bank is given permission usually by a business to transfer money into another account. To set it up it will need the name of the person being paid, the address of their bank, their sort code, and their bank account number.
The different between Bacs, chaps, and faster payments
Alongside Bacs payments, there are also CHAPS and faster payments. Although they are all ways of transferring money, they work slightly differently.
- CHAPS payments
The Clearing House Automated Payment System (CHAPS) is used for transferring large amounts of money, above the limits of the faster payments service. Payments are made and cleared on the same day and it’s used for high-value transfers, such as transferring money to pay a house deposit. The cost varies between banks but is typically around £25 to £30 per transaction. They represent 0.5% of all payments made in the UK, but account for up 92% of the amount of sterling payments made, according to the Bank of England.
- Faster Payments
The Faster Payments Service allows money to be transferred almost immediately. From the moment the money is sent to another bank account, it usually takes up to two hours for it to be available to withdraw. The maximum you can transfer in one day is £250,000, but many banks set their own lower limits.
What is the cost of a Bacs payment?
Using Bacs for direct debit payments should not cost you anything extra but if a company is using direct credit payments, to pay their employee wages, for example, they’ll pay around 23p a transaction.
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Rebecca Goodman is a freelance journalist who has spent the past 10 years working across personal finance publications. Regularly writing for The Guardian, The Sun, The Telegraph, and The Independent. Read more