Bacs vs CHAPS
Perhaps two of the most popular bank-to-bank payment transfer methods – Bacs and CHAPS – offer businesses a secure, reliable and efficient way of transferring funds electronically. Depending on the amount of money you want to transfer and the time in which you need it to be cleared, however, one particular method will inevitably be preferable over the other. So what’s the difference between the two?
Bacs Payments Bacs is perhaps the biggest and most widely used payment processing system by businesses in the UK, with a record £6.5 billion worth of transactions processed in 2019.
Bacs, now part of Pay.UK, is responsible for all of the Direct Debit and Bacs Direct Credit transactions that are made, with transfers enabled directly from bank account to bank account. It has an upper limit of £250,000 per transfer, with transfers considered incredibly affordable for the end-user.
Over 150,000 organisations use Bacs Direct Credit and whilst it is mainly known for wages and salary payments it can also be used for a wide range of other applications such as pensions, employee expenses, insurance settlements, dividends and refunds. Its popularity is down to the fact that scheduling regular payments is easy and the vast majority of payroll software systems are compatible with Bacs platform.
One possible limitation of Bacs is the time it takes to process the transactions. Payments clear in three days – meaning that some regular payments will need to be planned for in advance and adjustments made to account for ‘non-processing’ days such as Bank Holidays.
CHAPS Payments CHAPS, or the Clearing House Automated Payment System, on the other hand, is a same-day bank-to-bank transfer system for high-value or time-critical transactions.
If Bacs is primarily used for the ease of regular transfers and for the low cost of transactions, CHAPS is typically usually used for bigger, one-off payments. This is because transactions are relatively expensive, costing between £25 and £35 each, depending on the bank.
There is no upper limit to the value of a CHAPS payment, which often makes it the system of choice for financial institutions or large companies making one-off payments and where Bacs payments take three days to clear, CHAPS transactions take only a matter of hours – and the payment should be received on the day it’s made.