In the fast-moving world of finance, your company needs to be able to make quick payments in the most efficient way possible. You may have come across the terms BACS, CHAPS or Faster Payment in your personal banking, or while doing business. So what is a BACS payment, and how does it work? This article will be a guide on all things BACS, and we’ll dive into the following areas:

  • What is a BACS payment?
  • When would you use a BACS payment?
  • What information do you need to make a BACS payment?
  • How to make a BACS payment?
  • How long does a BACS payment take?

What is a BACS payment?

BACS is short for the Bankers’ Automated Clearing Services and a direct bank to bank cash transfer system that makes automated payments from one account to another. It is mostly used for lower-value and frequent transfers, as it is low cost and has no added charge attached. 

However, BACS does have an upper limit of £250,000 for a transfer, unlike a CHAPS payment which must be over £10,000 and has no upper limit.

When would you use a BACS payment?

The BACS process is most probably most familiar to you, as this is how Direct Debits are made. This is because BACS can be automated to send regularly and you’ll usually find BACS payments in the following forms:

  • Direct Debit: when you have given another party permission to take money from your bank account. Examples of Direct Debits could be your monthly council tax bill, monthly insurance premiums or pension payments. If you’re using Direct Debits to come out of your business account then they will be salary payments to any employees, your own wages, or paying regular supplier invoices or contracts.
  • Direct Credit: when another party deposits money into your account. Examples of a Direct Credit could be refunds, tax reimbursements or receiving money from regular customers who’ve paid for a service.

What information do you need to make a BACS payment?

To make or set up a BACS payment, you will need the following details for the account of the person or business you will be paying:

  • Sort code
  • Account number
  • Full name (or names) on the account
  • The name of the bank

You’ll also need the details of the opposite bank account in the transaction.

If you are paying a Direct Debit to another company, such as one of your suppliers, then often they will set up the payment and request this information from you, so they can collect their payment regularly.

If you are setting up a Direct Debit or Credit for a customer or employee for example, then you will need to request the same information listed above to be able to get the payments when you’ve scheduled them.

If you do not provide or get all this information, then you may encounter difficulty in making the payment without all the relevant details. Missed information could lead to a delay in your receiving or paying out the money.

How to make a BACS payment?

You will need to speak to your bank when doing a BACS payment, as not all banks are able to initiate them. You can find a list of banks included in the BACS process here.

You’ll then fill out a form with your bank to be able to make a payment to another bank account.

There may also be other options for making the payment that might be better than BACS (depending on the circumstances).

A Faster Payment is an electronic transfer between UK banks that happens within 2 hours but usually appears immediately. Faster Payment is the service you’ll have used if you’ve ever made a payment via your online banking or phone app to send a friend any money you owe. 

It is possible to make Faster Payments up to the value of £250,000, but every bank has its own limit on the maximum you can send via online banking, over the phone or in a branch. This method may be a more convenient way of making payments, as it’s faster than BACS and it will not have a charge attached, unlike a CHAPS payment. However, you aren’t able to cancel a Faster Payment as it’s an immediate process. BACS is used for regular payments because it takes longer to process and because of this, it can be cancelled or amended if there is a change needed.

How long does a BACS payment take?

Once a BACS payment is sent, it will take three working days to clear in the receiving account. Although the BACS process is a very secure way of making automated transactions, the clearing time means that BACS may not be the best option for time-sensitive transactions. The process goes as follows:

  • Day 1: Payments are submitted to BACS
  • Day 2: Payment is processed by the sending bank
  • Day 3: Payment is taken from the sender and received by the recipient account.

Make your financial management simple with Countingup

Now you understand the uses of the BACS payment system, you could make managing your business money simple too. Financial management can be stressful and time-consuming when you’re self-employed — that’s why thousands of business owners use the Countingup app to make their financial admin easier. 

Countingup is the business current account with built-in accounting software that allows you to manage all your financial data in one place. With features like automatic expense categorisation, invoicing on the go, receipt capture tools, tax estimates, and cash flow insights, you can confidently keep on top of your business finances wherever you are. 

You can also share your bookkeeping with your accountant instantly without worrying about duplication errors, data lags or inaccuracies. Seamless, simple, and straightforward! 

Find out more here.