Last editedMay 20222 min read
Electronic payments have become the rule rather than the exception in recent years, with their adoption being catalysed even further across the globe by the COVID-19 pandemic. As such, it’s vital for businesses to understand these payments intimately and absolutely.
There are three primary electronic payment methods used in the UK. Faster payments, which can be made online or over the phone and are generally immediate, CHAPS, which is a bank-to-bank payment system that clears on the same-day, and BACS.
What is BACS?
BACS (Bankers’ Automated Clearing System) is an electronic payment system that’s used to make direct payments from one bank account to another. It is the most common form of electronic payment used in the UK. In fact, if you’ve ever made a direct debit payment then you’ve probably used BACS.
The standard was first utilised in 1968 and is still the standard bank transfer method used in the UK over 50 years later. It’s an incredibly affordable and easy-to-manage system that has been used over 130 billion times and will probably be used many billions more in the near future.
Who receives payments via BACS?
Around 80% of all employees in the UK receive their wages through BACS. This is because it is a trusted, reliable system that is easy to set up and can be easily traced. All you need to make a BACS payment is the name of the payee, their bank account number and their branch sort code. GoCardless allows businesses to receive direct debit payments directly via BACS, as well as through our open banking product, Instant Bank Pay.
Why would a BACS payment be shown as pending?
All electronic payments will go through an authorisation process. When a bank receives a request, they will mark it as a pending payment until they are comfortable with releasing the funds. These processes exist to ensure that only verified individuals and businesses are using banking services. They include various security checks on both the payee and the transaction itself.
While other electronic payments might clear in minutes or hours, it often takes BACS payments up to 3 days before they clear. Until that payment clears it will show on all statements as a pending payment. This simply means that the payment has been acknowledged but has yet to be cleared by all responsible parties.
How long do BACS payments take?
A charge can clear in a matter of hours or in as many as 5 days but, generally speaking, most BACS payments will take around 3 days. Several factors will affect how long a pending change will appear on your account.
These include the time and date the transaction was made and how long the transaction takes to process. Most BACS payments tend to be made between 1am and 7am, so if your payment has not cleared by 7am it’s likely you’ll need to wait until the next day.
The three-day BACS cycle
The reason a BACS payment typically takes 3 days to clear is that there’s a cycle that posits the company submits the payment on the first day, the payment is delivered to the bank of the recipient on the second day and the payment is settled on the third day. It’s important that businesses factor this three-day cycle into their lead times if they want to ensure harmonious operations with their clients and employees.
We can help
GoCardless helps you automate payment collection and reduce time spent on financial admin. Its bank-to-bank payments system is powered by both Open Banking technology and Direct Debit infrastructure, making it perfectly suited to collecting both regular and one-off payments quickly, easily, and with reduced costs.
Find out how GoCardless can help you with ad hoc or recurring payments.