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A Complete Guide to Bacs Payments

Chris Hooper
Written by
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Last editedMay 20225 min read

In this article you will learn:

  • What is a Bacs payment?

  • Bacs: definition

  • Types of Bacs payments

  • Benefits of Bacs Direct Debit for small businesses

  • How to make a Bacs payment

  • How much does Bacs Direct Debit cost?

  • How long does a Bacs payment take?

  • How your business can quickly and easily begin taking Direct Debit payments

What is a Bacs payment?

A Bacs payment is an electronic transfer of funds from one UK bank account to another.

Bacs payment is one of the most common types of bank-to-bank transfers in the UK.

A Bacs payment is one of the most common bank-to-bank transfers in the UK. There are two main types of Bacs payment; Direct Debit, where one party has been given permission to pull money from the bank account of another party, and Direct Credit, where a party deposits the money in the other party's account.

What is the meaning of 'Bacs'?

Bacs stands for 'Bankers Automated Clearing Services'.  Bacs payment services are operated and managed by Pay.uk, a retail payments authority who are also responsible for managing Faster Payments and the Image Clearing System for cheques. In 2020 there were 4.5 billion payments made by Direct Debit, and almost 2 billion Direct Credit payments.

Alongside Bacs, bank-to-bank payments can also be made through Faster Payments and CHAPS. Faster Payments allows for near real-time payments between bank accounts in the UK. Meanwhile, CHAPS is a same-day payment method for high value transactions (e.g., for buying property).

Types of Bacs payments

There are two main types of Bacs payment: Direct Credit and Direct Debit.

  • Bacs Direct Credit is a 'push' payment where your customer deposits the money in your account. The payer controls push payments, both how much is paid and when it is paid.

  • Bacs Direct Debit allows your business to 'pull' money from a customer's bank account. With Direct Debit, you, the payee, control how much and exactly when you pull funds from the customer account.

Bacs Direct Credit Payments

Bacs Direct Credit (also known as “bank transfer”) is a secure service enabling organisations to make payments directly into another bank or building society account.

What is a Bacs Direct Credit used for?

Bacs Direct Credit is one of the most popular ways for UK businesses to make payments. It's typically used to make regular payments such as salaries, pensions, state benefits, and tax credits. There are about 2.1 billion Bacs Direct Credit payments made in the UK each year. 

Bacs Direct Credit is available to any business with a UK bank account.

Bacs Direct Debit Payments

If you want to take payments in your business, then Bacs Direct Debit may be the best option for you. It's a simple and cost-effective way to make recurring (and one-off) payments where same-day payment isn't required.

Direct Debit makes sense for business owners because it is a 'pull' payment. With pull payments, you control when you get paid, saving you the time and stress of dealing with and chasing late payments.

What is Direct Debit?

A Direct Debit is an instruction from a customer to their bank authorising an organisation to collect payments from their account. The customer must be given advance notice of the payment amounts and dates.

A customer gives this authorisation by completing a Direct Debit Mandate form – this can be a paper form or a web page that they complete online.

Once authorised, your business can automatically take payments from the customer without waiting for them to take action.

Direct Debit is the safest way of making payments in the UK as the Direct Debit Guarantee protects customers from fraudulent payments.

Direct Debit has traditionally been seen as a payment method only available to large corporations. However, with the advent of Direct Debit providers such as GoCardless, organisations of any sizes can now benefit from the advantages of taking Direct Debit payments.

GoCardless makes setting up Direct Debit easy for small businesses. You control when you get paid and can automate collection to ensure late payments are a thing of the past.

"Customers paying invoices up to 4 months late drove us crazy. Now we can automatically take payment when issuing invoices." - Steve Leighton, Founder, Has Bean Coffee

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Business Advantages of Bacs Direct Debit

  • Direct Debits enjoy a lower cost per transaction than credit and debit cards.

  • Great for recurring payments. Once you have a Direct Debit in place, you can sit back and forget about it.

  • With the Direct Debit Guarantee, customers are protected against payments made in error or fraudulently. 

  • Reduces failed payments, as, unlike credit and debit cards, Direct Debits cannot be stolen, lost, or expired.

  • The success rate of Direct Debit payments is 95-100%, compared to just 80-95% for cards.

GoCardless merchants get paid on time, every time with Direct Debit!

Learn how business owners are saving time, money & stress collecting payments with Direct Debit via GoCardless.

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How do you make a Bacs payment?

How to make Bacs Direct Credit payments

Your bank allows you to credit another account using either your personal or your business banking service. 

You'll need the name of the payee, the name of their bank, the payee's bank account number, and sort code. You will need the details for the account from which you are sending the money.

How to make Bacs Direct Debit payments

With Bacs Direct Debit, your customer authorises you to take payments from their bank account. 

You'll need the name of the payee, the name of their bank, the payee's bank account number, and sort code.

If your business wants to collect Direct Debit payments, there are three methods you can choose from:

  1. You can use the Bacs approved Bacstel-IP software to set up direct access via a bank.

  2. You can use a Bacs-approved bureau.

  3. You can use a third-party provider, such as GoCardless, to simplify and automate the process for you. Learn more about recurring payments with GoCardless.

If you'd like to learn more about each of these options, you may find our guide to accessing Direct Debit helpful.

How much does a Bacs Direct Debit cost?

Bacs Direct Debit is one of the cheapest ways to collect payments. However, setting up Direct Debit directly with your bank, you'll need to invest in Bacs-approved software, which significantly adds to the cost.

Equally, taking Direct Debit payments via a bureau will probably include a fee to cover the software costs. So it can work out cheaper to go with a Direct Debit platform instead. Here's what you can expect to pay with each Direct Debit option:

  • Via a bank: setup fees = £5,000 (+ costs of Bacs-approved software, typically £2495+). You will also have to pay transaction fees, ranging from between 5p - 50p + additional fees charged by banks.

  • Via a Bacs approved bureau: setup = £400-£800; transaction costs = 20p - 50p + monthly fees, submission fees, new mandate fees and penalty fees.

Via GoCardless: We offer different packages depending on your business needs. With our standard package, we only charge on your transactions: 1% + 20p per transaction, capped at £4. Learn more about pricing.

How long does a Bacs payment take?

A Bacs payment takes 3 working days to be available in your bank account.

A common question asked is: are Bacs payments instant?

Neither Bacs Direct Credit nor Bacs Direct Debit payments are instant. The Bacs process works on a three-day cycle, so payments will arrive at the recipient’s bank account on the third business day after it was made, as long as it was submitted before the cut-off time on day one.

Payments are submitted to Bacs on the first day, processed by the banks on the second day, and simultaneously taken from the sender account and credited to the recipient account on the third day.

With the Faster Payments Service, payments typically take fewer than 2 hours.

Take control of payment collection with Direct Debit via GoCardless. Eliminate late payments. Reduce time spent on financial admin. Get paid on time, every time.

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How safe is making payments using Bacs?

Bacs is an incredibly safe way to collect, and make payments, and is renowned around the world for the secure delivery of electronic payments:

  • Bacs has been responsible for the clearing and settlement of automated payments in the UK since 1968.

  • It has been used to make more than 130 billion transactions and, according to recent research, has never misplaced a payment.

  • Bacs uses Bacstel-IP, a system protected by SSL encryption. It also requires a secure, encrypted password, and the system is constantly monitored to validate data and user authorisation.

  • With Direct Debit, only approved organisations are allowed to collect Direct Debit payments and the Direct Debit Guarantee protects customers against any payments made fraudulently.

GoCardless and Bacs

GoCardless allows organisations of all sizes - from one-man bands to larger businesses - to collect Bacs Direct Debit payments without the hassle or the cost traditionally associated with Direct Debit. Set up is free and takes just a few minutes. 

GoCardless is a Bacs-approved platform that provides a low-cost and simple way to collect online Direct Debit payments. You can access GoCardless via more than 200 third-party platforms, including all the leading accounting software providers. Alternatively, you collect Direct Debit payments by using GoCardless directly.

Our competitive pricing makes GoCardless an incredibly cost-effective way of collecting recurring payments. Current users include DocuSign, PieMinister, Cuckoo, and Epson.

Easily say goodbye to expensive transaction fees and late payments with Bacs Direct Debit through GoCardless. It is quick and easy to set up and gets you paid on time, every time.

"GoCardless is a 10 out of 10 solution. The team is always so helpful and responsive." -Diego Passarela, Head of Billing & Payments, Quandoo

Still have questions about different payment types related to Bacs? Find out more about:

"In short, GoCardless has become a key payment method option for DocuSign. And wherever we offer GoCardless, customers convert better.”

"In short, GoCardless has become a key payment method option for DocuSign. And wherever we offer GoCardless, customers convert better.”

Docusign increased customer retention compared to credit cards and PayPal, increased conversion rates by 10% wherever GoCardless is available, and generates a higher average selling price (ASP) than other payment methods.

Read the case study

Take control of payment collection with Direct Debit via GoCardless. Eliminate late payments. Reduce time spent on financial admin. Get paid on time, every time.

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