Bacs Payments Explained – What Are They & How Long Do They Take?

Euan Robb
Content Manager at Equals Money
min read
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What is the Bacs payment system?

The Bacs payment system, also known as Bankers' Automated Clearing Services, is a method of electronically transferring funds between bank accounts (bank transfers) within the United Kingdom.

Bacs is operated by Bacs Payment Schemes Limited, a subsidiary of Pay.UK, and is widely used for various types of payment, including direct debit and direct credit. Direct debit allows individuals and businesses to set up automatic payments to be taken from their bank accounts, while direct credit facilitates the electronic transfer of funds into bank accounts.

Bacs offers a reliable and cost-effective means of processing payments between bank accounts, eliminating the need for paper-based methods and reducing administrative burden. It's a highly secure and efficient system, handling billions of transactions each year and plays a crucial role in the UK's payment infrastructure, providing a streamlined and reliable platform for transferring money between bank accounts.


Importance of Bacs in electronic payments

The Bacs payment system is an essential component of electronic payments in the financial industry. With its wide range of uses and the high number of transactions it has facilitated since its inception, Bacs offers numerous benefits and features that make it indispensable.

One key benefit of the Bacs payment system is its efficiency. Bacs enables businesses and individuals to easily make electronic payments, eliminating the need for time-consuming and costly manual processes such as writing cheques. This saves both time and money, allowing for more streamlined financial transactions.

Another important feature of Bacs is its versatility. It can be used for a wide range of purposes, including payroll processing, direct debit collections, and supplier payments. This flexibility makes Bacs a valuable tool for businesses of all sizes, as it can cater to their diverse financial needs.

In addition to its efficiency and versatility, Bacs stands out due to the high number of transactions it has processed since its inception. With over 130 billion payments made through Bacs, it has become a trusted and reliable platform for electronic payments. The sheer volume of transactions showcases the widespread adoption and success of the Bacs payment system.

In conclusion, the Bacs payment system plays a vital role in electronic payments, offering numerous benefits and features. Its efficiency, wide range of uses, and high number of transactions make it an indispensable tool for businesses and individuals alike.


Understanding the process of Bacs payments

As mentioned, Bacs Payments is a widely-used system for electronic financial transactions in the United Kingdom. It enables businesses and individuals to make secure payments directly from one bank account to another.

To fully comprehend the process of Bacs Payments, it is important to delve into the various stages involved:

  • This includes the initial set-up, where the payer and payee each establish their Bacs service with their respective banks.
  • Next, authorisation is sought from the payer's bank, ensuring that there are sufficient funds available.
  • If sufficient funds are available, the payment is then transmitted to Bacs (the organisation responsible for managing the system), who process and allocate the funds accordingly.
  • Leading to the final stage of the transaction, where the payee's bank credits the funds to their account.

By understanding this intricate process, individuals and businesses can confidently engage in Bacs Payments and experience the convenience and security it offers.


How Bacs payment works

The Bacs process involves two types of payments: Direct Debit and Direct Credit.

Direct Debit is used when a customer authorises a company or organisation to automatically withdraw funds from their bank account on a regular basis. To set up a Direct Debit payment, the customer must provide the company with their bank account details, including the sort code and account number. The company then uses this information to initiate the payment from the customer's bank account.

Direct Credit, on the other hand, is used when a customer receives funds into their bank account. To receive Direct Credit payments, the customer needs to provide the payee with their bank account details, including the sort code and account number. The payee then uses this information to authorise the payment to the customer's bank account.

In order to participate in Bacs payments, companies or organisations need to obtain a Service User Number (SUN) from Bacs. The SUN is a unique identifier that allows them to initiate or receive Bacs payments. It ensures that all payments are properly attributed to the correct company or organisation.


The difference between Direct Credit and Direct Debit

Direct Credit and Direct Debit are two widely used financial mechanisms in the UK, each serving a distinct purpose.

Direct Credit is a method used to transfer funds from one bank account to another, typically for receiving payments. It allows funds to be deposited directly into a recipient's account without the need for physical checks or cash. This method is often used for salary payments, pensions, and benefits. Direct Credit transactions can only be initiated by the payer and require the recipient's bank account and sort code details.

On the other hand, Direct Debit is a payment method commonly used to collect recurring payments, such as utility bills, household bills, or subscriptions. It allows the payee to automatically collect funds from the payer's account on a specified date. Direct Debit transactions can only be authorised by the payer, who provides a mandate allowing the payee to collect a regular payment of funds from their account. This method is favored for its convenience and efficiency in regularly collecting payments.

One key advantage of Direct Debit is the Direct Debit Guarantee, which protects consumers from fraudulent payments or transactions. If an error occurs, the payer is entitled to an immediate refund from their bank. This guarantee offers peace of mind to both payers and payees. Additionally, the cost per transaction for Direct Debit is typically lower compared to other payment methods, making it an attractive option for businesses.


How long does a Bacs payment take?

Bacs payment processing time can vary depending on several factors. The standard timeline for a Bacs payment to clear is three working days. This three-day cycle is initiated when the payment file is submitted to the Bacs system.

The time it takes for payments to clear can be influenced by multiple factors. One of the main factors is the day of submission. Payments submitted on a business day before the cut-off time will typically clear three business days later. However, if the payment file is submitted after the cut-off time, it will be processed on the next business day, extending the processing time.

Furthermore, weekends and bank holidays can also impact processing times. If a payment is submitted on a Friday or a day before a bank holiday, the processing time will be extended. This is because Bacs does not process payments on weekends and bank holidays, resulting in a delay of clearance.

It is important to note that once BACS transfers are submitted, they cannot be immediately recalled. The payment will follow the three-day processing cycle. However, after the payment has cleared, it is possible to request a recall if there are valid reasons for doing so.


Are there quicker alternatives to Bacs payments?

Yes, there are quicker alternatives to Bacs payments. Two commonly used alternatives are CHAPS payments and Faster Payments.

CHAPS payments, which stands for Clearing House Automated Payment System, are a same-day payments and transfer option. Unlike Bacs payments, which can take up to three working days to clear, CHAPS payments guarantee that the funds will be transferred on the same day. This makes them a faster option for urgent payments. Moreover, CHAPS payments do not have any transaction limits, allowing for large transfers. However, one limitation of a CHAPS transfer is that they come with higher fees compared to Bacs payments. Additionally, there are strict deadlines for submitting CHAPS payments; missing these deadlines or payment times incurs even higher fees.

On the other hand, UK Faster Payments is an instant transfer or real-time payment option. As the name suggests, this method allows for near-instant money transfers, making it an even quicker alternative compared to both Bacs and CHAPS payments. Furthermore, one advantageous feature of Faster Payments is that it is available on weekends and bank holidays, allowing for seamless fund transfers at any time, perfect for making high-value transactions or business transactions.

In summary, if you are looking for quicker alternatives to Bacs payments, you have the option of using CHAPS payments or Faster Payments.

What banks use Bacs payments?

The banks and financial institutions that participate in the Bacs payment scheme, according to the Bacs website:

Bank or financial institutions Bacs payments
Allied Irish Bank
Atom bank
Bank of England
Bank of Scotland PLC
Barclays Bank PLC
Barclays Bank UK PLC
Citibank NA
Clydesdale Bank PLC
Coutts & Co
Lloyds Bank PLC
Metro Bank
Nationwide Building Society
Northern Bank
Starling Bank
The Access Bank UK
The Co-operative Bank
The Royal Bank of Scotland
Turkish Bank UK
Virgin Money

This publication is intended for general information purposes only and should not be construed as financial, legal, tax, or other professional advice from Equals Money PLC or its subsidiaries and affiliates.

It is recommended to seek advice from a financial advisor, expert, or other professional. We do not make any representations, warranties, or guarantees, whether expressed or implied, regarding the accuracy, or completeness of the content in the publication.

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About the author
Euan Robb
Content Manager at Equals Money