What is a BACS payment? – a complete guide

What is a BACS payment?

BACS payments are a commonly used system of payment by businesses in the UK.

Businesses tend to use BACS to pay suppliers and employees because regular payments can be scheduled and many payroll systems are compatible with the process.

Is BACS payment the same as bank transfer?

A BACS payment is a bank transfer from one bank account to another, but unlike faster payments, it takes three business days to arrive. A BACS payment can also be a direct debit when funds are taken out of a customer’s bank account – this is the opposite of a bank transfer.

BACS payment time

A BACS payment takes three working days to process.

  • Day 1: BACS payment request submitted.

  • Day 2: Recipient receives the payment request.

  • Day 3: The BACS transaction is settled, and funds cleared to the recipient account

See how IGsend reduces the BACS processing time from three-days to just 27 seconds by using Faster Payments.

What time do BACS payments go into the bank UK?

BACS payments physically go in to the creditor/destination bank (having been through clearing) usually at 00:01 of the due date or by 07:00.

What does BACS stand for in banking terms?

Bankers’ Automated Clearing Services and the electronic transfer of funds first began in 1968 in Bankers Clearing House’s computer room.

Since then, technology has advanced enormously; now people are more familiar with Faster Payments, where funds can be transferred between bank accounts instantly. IGsend allows salaries to be paid using Faster Payments – find out more in our blog.

How to make BACS payments

BACS Direct Credit payments

For direct credits, the bank enables either a personal or business banking service to credit another account.

To make a direct credit payment a few things are required:

  • the name of the bank
  • the payee’s bank account number, and sort code.
  • the details for the account from which the money is being sent

BACS direct debit payments

With BACS direct debit, a customer authorises a business to take payments from their bank account.

For direct debit payments there must be:

  • the name of the payee
  • the name of their bank, account number and sort code.

What is a BACS remittance letter

A BACS payment remittance advice letter is to let the user know that payment has been made to their account.

What time do BACS payments go in

BACS payments normally arrive in the bank account by 7am. If a BACS payment hasn’t been credited by 7am, it is likely that it would need to wait until the next working day to receive the payment.

How long do BACS take to clear?

BACS payments work within a three-day cycle to clear, for both direct debit and direct credit.

  • Day one a payment is submitted to BACS.
  • Day two the payment is processed by the banks involved in the transaction.
  • Day three funds are taken from the sender’s account, and the recipient is credited — which can only go through if sufficient funds are available, and all details were correctly entered on day one.

Payroll payments in 27 seconds

What is a BACS User Number?

A Service User Number (SUN) must be applied for and granted from a user’s bank to make BACS payments. The process of obtaining an SUN can be an expensive and time-consuming process. Once an SUN is obtained BACS payments can be made using the user’s own bank or third-party software.

What are the limitations with BACS payments

One of the major limitations of BACS is the time it takes to process the transactions. Payments clear in three days – meaning that BACS is not the best option for time-sensitive transactions.

What does payment by BACS mean

Payment by BACS means payment has been made directly from one bank account to another. They are mainly used for direct debits and direct credits from organisations. The payments take 3 working days to clear, so money paid into the account before the deadline on Monday will clear on Wednesday.

Is BACS expensive

BACS is considered a ‘slow but cheap’ way to send funds. It only costs a few pennies, mostly depending on the volume and the bank, or BACS bureau. However, keep an eye out for hidden bank charges which may come as an unwelcome surprise. These include BACS file charges, charges for rejected BACS files and file re-input or amendments.

bacs v instant payment

BACS payment alternatives

Alternatives to BACS include CHAPS and Faster Payments.

Due to the fact that BACS payments only clear on business days, if time-sensitive or urgent payments are required, the weekend must be factored in when working out a timescale. If funds need to arrive on Monday, the payment must be processed on the Wednesday before, not the Friday.

Also many banks have a cut-off time of 3pm on Wednesday for a transaction to clear by Friday. Payments made after that deadline may not clear until the following Monday.

What are CHAPS payments?

CHAPS is a sterling same-day system that is used to settle high-value wholesale payments as well as time-critical, lower-value payments, such as buying or paying a deposit on a property.  CHAPS payments can only be made 6am – 6pm, Monday to Friday except bank or public holidays in England and Wales. There is also a fee to process a CHAPS payment, this varies from bank to bank but is usually £25-30.

The Faster Payments Service is a banking initiative to reduce payment times between different banks’ customer accounts to just a few seconds, from the three working days that transfers usually take using the long-established BACS system. The associated fees are low, payments can be made 247/365 and they are processed immediately.

Read more about the differences between BACS, CHAPS & Faster Payments in our free guide

IGsend is partnered with Mastercard & Starling Bank and uses Faster Payments to allows payroll teams to have a flexible approach to their calendar and employees can have their pay streamed in real time. Find out more here.

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