What is BACs? Your guide to Bacs payments

In today's digital age, the world of payments has become faster and more convenient than ever before. It's ideal for businesses that are handling money every day, from paying suppliers to accepting payments from customers.

One of the most used payment methods in the UK is the Bacs payment. In this guide, we've outlined the basics on this topic, from what Bacs payments are, how they work and how long they take to clear.

What does Bacs stand for?

Bacs stands for "Bankers' Automated Clearing Services" - it's an electronic payment system used for transferring money between UK bank accounts.

It was launched in 1986 to provide an alternative to manual, paper-based payment processing for banks and building societies in the UK.

Today Bacs is ran by pay.uk, along with the Faster Payment System and the Image Clearing System.

The Current Account Switch Service, Confirmation of Payee and Request to Pay are all also part of pay.uk.

What is a Bacs payment?

A Bacs payment is a form of bank-to-bank transfer. It's a popular type of payment amongst UK businesses because it's cost-effective, efficient and secure.

There are 2 types of Bacs payments:

Direct Debit: This is when a business or individual gives permission to another party to automatically take payments from their account on an agreed schedule. These are typically used for things like utility bills, mortgages or subscriptions

Direct Credit: Otherwise known as a "bank transfer", Direct Credit involves directly depositing money into another person's or business's account. This payment type is used for salaries, pensions and refunds, for example. In fact, Bacs Direct Credit is used to pay 8 out of 10 employees in the UK

Bacs payments cannot be made with a credit card as they work from bank-to-bank.

Is a Bacs payment the same as a bank transfer?

A Bacs payment is one type of bank transfer. In the UK, we have 3 main types of bank transfers: Bacs (Bankers' Automated Clearing Services), Faster Payments and CHAPS (Clearing House Automated Payment System).

	Bacs	Faster Payments	CHAPS
Processing time	3 working days	Near-instant (usually within seconds)	Same-day (if sent before the cut-off - usually around 4:25pm but check with your bank)
Availability	Weekdays only	24/7, including weekends and bank holidays	Weekdays only
Transaction limit	No official limit	Typically up to £1 million (specific to each bank)	No official limit
Use case	High-volume, low-value payments (salaries, Direct Debits)	Everyday transactions (one-off payments, online banking)	High-value, urgent payments (property purchases)

The cost of each payment type is determined by your bank, so be sure to check with them first.

How to make a Bacs payment

Log into your online banking

Navigate to the Payments section and select Bacs as the payment type (it may be labelled as a "standard transfer"

Enter the recipient's name, sort code and account number, how much you need to transfer and a reference for the transaction

Review the details before proceeding to make sure it's right

Confirm the payment and submit it for processing

How long does a Bacs payment take to process?

Bacs payments are processed in batches, and the clearing cycle typically takes 3 working days.

Day 1: The payment is submitted and entered into the Bacs system

Day 2: The payment is processed

Day 3: The payment is transferred from the sender to the recipient

Payments made on a non-working day, such as weekends or bank holidays, will take longer to clear.

The time of day the payment is initiated can also affect processing times. Payments made later in the day may not be processed until the following working day. So, for the standard 3-day cycle to apply, you must submit the payment before your bank's cut-off time at the end of a working day.

Factors that may affect Bacs payment processing times

Apart from the day of the week and the time of day, there are a few other factors that may affect Bacs payment processing times.

One such factor is the efficiency of the payer's bank. Some banks may have faster processing times than others, so it's worth considering this when initiating a Bacs payment.

Any errors or discrepancies in the payment details can also lead to delays in processing. It's important to double-check all the information before making a Bacs payment to ensure smooth and timely processing.

How much do Bacs payments cost?

Bacs payments are considered the most cost-effective option when it comes to UK bank transfers.

The cost of sending a Bacs payment is determined by your bank, but it's typically very low (from 5-50p per transaction).

Some banks may offer lower transaction fees for higher volumes of payments. Others may offer different tariffs for different accounts. At Tide, we offer unlimited free transfers for our Pro and Max accounts.

The benefits and potential risks of Bacs payments

Benefits

They have lower transaction fees which makes them ideal for high-volume payments, like salaries

They're highly automated which reduces administrative work for recurring payments

Secure encryption and the Direct Debit Guarantee provide strong protection against fraud and errors

Automation reduces the risk of human error from manual data entry

Potential risks

The 3-day processing cycle makes it less suitable for urgent payments

The process is hard to reverse once it's been started, so it's important to double-check every detail before submitting a payment

Similarly, any error will delay the payment so confirming the details beforehand is important

Image from Unsplash published by claybanks