Skip to content
Open site navigation sidebar
Go to GoCardless homepage
Pricing
LoginSign up

The Complete Guide to Bacs and Bacs Payments

Chris Hooper
Written by
Reviewed by

Last editedDec 202210 min read

What is a Bacs Payment?

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, an organisation responsible for the UK’s retail interbank payment systems. In 2021, Bacs processed over 4.6 billion Direct Debit payments, an increase of 114 million compared to the previous year (source).

Alongside this, 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).

In this article, we'll also look at:

  • how to make a Bacs payment

  • how much Bacs costs 

  • how long Bacs takes 

We'll also compare the different payment methods so you can choose the most appropriate method based on your requirements.

Types of Bacs Payments

Bacs Direct Debit

Direct Debit may be the best option for you if you want to take payments and get paid on time. It's a simple and cost-effective way to take recurring (and one-off) payments where same-day payment isn't required.

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 as long as the customer is 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 you complete online. Once authorised, the organisation can automatically take payments from you (provided that they comply with the scheme rules).

Direct Debit is the safest way of making payments in the UK, as the Direct Debit Guarantee means that customers are protected 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 size can now enjoy the business benefits of accepting Direct Debit payments. 

This is possible without going through the long and complex process of getting a sponsor bank and applying for a Service User Number because GoCardless offer a done-for-you Direct Debit collection service.

Read more about the many business advantages of collecting payments via Direct Debit with GoCardless.

Learn More

What is Bacs Direct Debit used for?

Direct Debit is typically used for taking regular or recurring payments like household bills, subscriptions, memberships or charitable donations. However, Direct Debit is extremely flexible and can be used to collect a wide variety of payments, including:

With GoCardless you can also combine Direct Debit with Instant Bank Pay to enable you to take an initial payment instantly and further payments on a recurring basis.

Direct Debit is a popular payment option in the UK. 90% of the UK population pay at least one regular bill by Direct Debit. According to UK Finance, in 2021 there were 4.6 billion payments made by Direct Debit, with an overall value of £1,243 billion. This is forecast to grow to over 5 billion payments by 2024.

Advantages of Direct Debit

  • 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. 

  • Unlike credit and debit cards, which can be stolen, lost or expire, a Direct Debit is relatively future-proof. That means failed payments are minimised. The success rate of Direct Debit with GoCardless is 97.1% and above, compared to just 85% - 90% for cards.

Disadvantages of Direct Debit

  • Direct Debit is not suitable for same-day payments, as payments take 3 working days to process. Although with the advent of Instant Bank Pay, this is no longer the issue it once was.

  • Traditionally, Direct Debit could only be offered by larger businesses with the financial and legal resources to be scheme-compliant. Though Direct Debit still requires Bacs-approved software, third-party payment platforms such as GoCardless are making Direct Debit accessible to SMEs and smaller businesses.

  • Though ‘set and forget’ is usually seen as a benefit of using Direct Debit, some customers may prefer to keep complete control of their payments and manually action each transaction themselves.

  • If a customer does not have the necessary funds in their bank account, then their bank could refuse to pay the Direct Debit. 

Bacs Direct Credit

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. There are about 2.1 billion Bacs Direct Credit payments made in the UK each year. It's typically used for making regular payments such as salaries, pensions, state benefits and tax credits. However, with the introduction of Universal Credits in the UK, the volume of state benefits paid through Bacs Direct Debit may fall. 80% of the UK workforce is paid using Bacs Direct Credit.

Advantages of Bacs Direct Credit

  • In comparison to some payment methods, such as cheque, Bacs Direct Credit is a much easier payment method to administer, with much of the process, including remittance and reconciliation, benefitting from automation.

  • There are some immediate cost savings of using Bacs Direct Credit. For example, when comparing it to handling paper money, such as cash and cheques, there are fewer security requirements.  You also save on postage costs when sending out cheques. All of these have a positive impact on your carbon footprint and will help you meet your business’ environmental targets.

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

  • Improved cash flow is another key benefit of Bacs Direct Credit. By using it to process regular payments, you get greater control and oversight of money leaving your business. This makes it easier to accurately plan and forecast.

Disadvantages of Bacs Direct Credit

  • Bacs Direct Credit takes three working days to clear, with strict cut-off times for processing payments, so it is not suitable for immediate and same-day payments.

  • Unlike Direct Debit, Direct Credit is a push-based payment method. So ultimately, you are relying on the payer to action the payment on time.

How do you make a Bacs payment?

Bacs Direct Credit

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 the sort code. You will need the same details for the account to be debited.

Direct Debit

With 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 the 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.

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

How much does a Bacs payment cost?

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

Equally, taking Direct Debit payments via a bureau will probably include a fee to cover the cost of the software. 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, which are typically £2495+). You will also be charged transaction fees, which can range 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 1% + 20p per transaction, capped at £4. Simple.

See our full list of plans and pricing here.

Faster Payments cost a little more than Bacs transfer payments but will still cost less than using CHAPS (which costs between £25 to £30 per payment).

How long does a Bacs payment take?

Both Bacs Direct Credit and Direct Debit payments work on a three-day cycle, taking three working days to clear. 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.

How safe is making payments using Bacs?

Bacs is an incredibly safe way to collect and make payments and is renowned worldwide 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 fraudulent or unauthorised payments.

Other types of bank-to-bank payments

Faster Payments

In 2008, Faster Payments was introduced in the UK. It provides near real-time payments between bank accounts in the UK.

Faster Payments are electronic payments that can be made online, over the phone, in a branch or through self-service kiosks. Payments normally clear in less than 2 hours, provided both the sending and receiving banks are part of the Faster Payments Service. If either bank is not part of the service, the payment will automatically be processed through Bacs Direct Credit instead (and will therefore be subject to a longer processing timeline).

The Faster Payments system is operated by Faster Payments Scheme Ltd (FPSL), an organisation consisting of a number of UK banks and building societies.

What are Faster Payments used for?

Faster Payments is primarily used for making large numbers of small value payments. This includes bills, expenses, supplier payments and online transfers. As of February 2022, PayUK, owners of the FPS system, will allow transactions of up to £1m, but individual banks will often impose their own lower transaction limit. Last year, the Faster Payment System enjoyed a record-breaking 12 months, processing 3.4 billion transactions with a value of £2.6 trillion (source).

Advantages of Faster Payments

  • Speed is the key benefit of Faster Payments. Recipients will typically get their money instantly or within 2 hours of the payer actioning the payment.

  • With Faster Payments, you can send money to a mobile number with no need for a bank account number or sort code.

  • Faster Payments is offered by all the major UK banks, and over 400 other financial institutions, meaning more than 52 million current account holders in the UK can access the service.

Disadvantages of Faster Payments

  • Faster Payments is not universally available from every bank, and certain types of accounts, such as savings, cannot use the scheme.

  • Payments are limited to £1m, though banks can set a much lower transaction limit.

  • Because of the speed of Faster Payments, the payment can’t be cancelled once sent.

CHAPS

CHAPS, or the "Clearing House Automated Payment System", is a British company offering high-value bank-to-bank GBP fund transfers.

The CHAPS system guarantees same-day payment so long as instructions are received by 2pm on a working day. There’s no limit to the amount of money you can send through CHAPS, although it's a relatively expensive way to transfer money. Bank charges for using CHAPS vary but are typically between £25 to £30.

What is CHAPS used for?

CHAPS (Clearing House Automated Payment) is typically used for making high-value transactions where same-day payment is necessary, e.g. buying property or settling money market and foreign exchange transactions. More than 30 banks and 5,000 financial institutions participate in the scheme. 

In 2021, CHAPS volumes grew by 7.7% to 48.0 million and the total value transmitted in CHAPS in the 12 months to December 2021 was £86.3 trillion (source).

CHAPS represent just 0.6% of all payments made in the UK, but 92% of their value!

Advantages of CHAPS

  • The two main benefits of CHAPS are time and value. There is no limit on the amount of funds that can be sent by a CHAPS payment. And, as long as your payment instruction is sent before the cut-off time, it should be received the same day.

  • CHAPS is typically designed for businesses and individuals that need to make time-sensitive and relatively large one-off payments. As such, there is a strict cut-off time for when a CHAPS payment can be processed that day.

Disadvantages of CHAPS

  • Strict cut-off times - CHAPS is typically designed for businesses and individuals that need to make time-sensitive and relatively large one-off payments. As such, there is a strict cut-off time for when a CHAPS payment can be processed that day.

  • Difficult to cancel payments - Once you make a CHAPS payment, there is little time to cancel the payment. If the payer has made a mistake, there is no guarantee that the bank will be able to recall the funds if they have been received by the beneficiary. 

  • Costly - Relative to other payment schemes, CHAPS is expensive to access. For the end user, costs vary between £25 to £30 per payment.

Which type of payment method should you use?

If you want to be in control of when you get paid, then Bacs Direct Debit may be your best option.

This is because it is a pull payment method, unlike other methods which rely on the payer to action the payment each time. Direct Debit offers a simple and cost-effective way of taking recurring (and one-off) payments where same-day payment is not required.

When you’re considering the best method to make a payment, choosing the right option will depend on the types of payments you want to make:

  • If you are making one-off high-value payments (of over £100,000) where same-day payment is needed then CHAPS may be your best option.

  • If you are making a large volume of payments below the limit of £100,000 and need the payment to be processed on the same day, it may be worth considering Faster Payments.

  • If you are making fixed, regular payments, such as salaries, you may want to look at using Bacs Direct Credit.

GoCardless and Bacs

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

Alternatively, you collect Direct Debit payments by using GoCardless directly.

  1. GoCardless - GoCardless lets organisations of all sizes - from one-man bands to larger businesses - collect Direct Debit payments without the hassle or the cost traditionally associated with Direct Debit. Set up is free, and takes just a few minutes. Our competitive pricing makes GoCardless an incredibly cost-effective way of collecting recurring payments. Current users include Bike Club, TripAdvisor, Aon and Docusign.

  2. GoCardless Plus - With GoCardless Plus, your business name appears on your customer's bank statements and you get extra customisation options on your payment page.

  3. GoCardless Pro - GoCardless Pro is specifically designed for large and multinational organisations. It combines the simplicity of our core offering with control over the payment pages and processes that large corporations need. It takes 4 to 6 weeks to get set up, which includes getting your own SUN and all your processes approved by the banks. Current customers include the Guardian and Lendable.

GoCardless and Bacs

GoCardless allows organisations of all sizes - from one-man bands to large businesses - to collect Bacs Direct Debit payments without the hassle or the cost traditionally associated with banks.

GoCardless is a Bacs-approved platform that provides an affordable and simple way to easily collect online Direct Debit payments.

  • With GoCardless, it's free to get started, and setup takes just a few minutes. 

  • You can set up automated payment collection in just a few clicks using the merchant dashboard.

  • You can also connect GoCardless with your favourite accounting software to further automate payment admin

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

GoCardless makes it easy to accept Direct Debit. Automate payment collection. Reduce manual admin. Get paid on time, every time.

Get StartedLearn More

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

Interested in automating the way you get paid? GoCardless can help
Interested in automating the way you get paid? GoCardless can help

Interested in automating the way you get paid? GoCardless can help

Contact sales