What is BACS payment and how long does it take?

What is BACS payment?

BACS (managed by BACS payment schemes limited) is an electronic arrangement used to perform direct payments or transactions from one bank account to another bank account. The two chief modes of payment are BACS direct credit and direct debit, and the transaction can be completed in 3 working days (i.e. for the payment to clear). The provision is managed fully by BACS payment schemes limited. Automated payments are the backbone of the UK’s financial system as they provide essential service for both organisations and consumers. BACS payment schemes limited is the corporation which operates direct debit in the united kingdom. It also operates the BACS direct credit scheme, which helps to settle invoices received from suppliers and pay salaries. The company, on 1-May-18, became a wholly owned subsidiary of the NPSO – New Payment System Operator. As part of the restructuring, the accountability of operations for BACS direct credit, cash ISA transfer service, direct debit, the current account switch service, and the Industry sort code directory were moved to the NPSO.

Types of bank-to-bank payment

Direct debit

An instruction given to the bank by a customer, thereby, authorising a business or an organisation to collect the payable amount from their bank account as long as the bank receives an advance notice from the customer about the payment date and amount is referred to as direct debit. This method is the safest means of making payments in the united kingdom as the customer is secure from falsified payments through the direct debit guarantee. Direct debit has conventionally been treated as a payment mechanism only accessible to large companies, however, it can be used by businesses of any sizes and can take advantage of the direct debit payments. It's characteristically used for taking systematic or repetitive payments such as charitable donations, household bills, memberships or subscriptions. It is the most popular option of payment in the United Kingdom and has benefits such as recurring payments can be set and forgotten, cheap mode of payment etc. The below mentioned table demonstrates Direct Debit’s adaptability across a range of sectors:

Advantages of direct debit

1. The cost per transaction is lower than with credit or debit cards.
2. The direct debit guarantee protects clients against erroneous or fraudulent payments.
3. Excellent for payments that are made on a recurring basis. Once you've established a direct debit, you may relax and forget about it.
4. In comparison to credit and debit cards, which are susceptible to theft, loss, and expiration, a direct debit is largely future-proof. This results in a reduction of failed payments. Direct debit payments have a success rate of 95-100 per cent, compared to just 80-95 per cent for card payments.

BACS direct credit

Bank transfer or BACS direct credit is a safe provision facilitating businesses to make disbursements straight into a building society account or a different bank account. It's usually used to make regular transactions such as pensions, salary payments, and benefits from state and tax credits – nearly 90% of the united kingdom employees are remunerated through BACS direct credit.

Advantages of BACS credit

1. BACS direct credit is available to any business that has a bank account in the united kingdom.
2. BACS direct credit method is far easier to administer in comparison to payment methods like cheques due to its automatic disbursal of payments, including remittance and reconciliation.
3. Using BACS direct credit results in some immediate cost savings. For example, when compared to handling paper money, such as cash and cheques, the security standards are significantly less onerous. Additionally, you save money on postage when sending out cheques. All of which reduces your carbon footprint and assists you in meeting your business's environmental goals.
4. Another significant benefit of BACS direct credit is improved cash flow. By using it to execute routine payments, you gain a greater sense of control and oversight over the funds leaving your business. This enables more precise planning and forecasting.

How long does a BACS payment take?

BACS direct credit and direct debit payments operate on a three-day cycle, with each transaction taking three business days to clear. The BACS process begins with the submission of the payment file to the BACS system prior to a specified cut-off time. The bank processes the file on the second day, and the money is credited to the recipient's bank account on the third day.A BACS transfer, also known as a BACS direct credit, often comes at 7 a.m. on the third day. BACS transfers are only available Monday - Friday; despite the fact that it is an electronic payment system, it enjoys taking non-working days off!

How to make a BACS payment?

For BACS direct debit payments, a customer authorises you to deduct funds from their bank account to cover the cost of goods or services delivered. You will need their name, bank name, account number and the sort code to accomplish this.

Direct credit payments enable you to credit a customer's account directly from your personal or corporate bank account. You'll need the same information as for direct debit. Direct credit payments enable you to credit a customer's account directly from your personal or corporate bank account. You'll need the same information as for direct debit. We may make BACS direct credit payments on your behalf for a variety of business purposes, including supplier payments, wages, and so on.

What is a BACS user number, and is it needed to make a BACS payment?

You must have a service user number (SUN) in order to receive BACS direct debit or direct credit payments. A SUN is a six-digit unique number that identifies your business and helps in the tracking of BACS transactions. It simplifies the BACS system's identification and collection of your records, as well as your access to them. You can apply for one on your own (check your eligibility first) or commission payment to the third-party bank, PSP, or bureau to have one allocated for you. In this situation, you do not need to apply for or own a SUN.

To make a BACS payment, you must enter the payment's value, the receiver's sort code and account number. Additionally, you can include a payment reference so that the receiver can monitor the payment's nature and identify you as the sender.

How secure are BACS payments?

Since 1968, BACS has been responsible for the automated clearing and settlement of payments in the united kingdom. BACS is an incredibly secure method of collecting and making payments and is famous worldwide for its secure electronic payment delivery.It has been used in over 130 billion transactions and has never lost a payment. BACS makes use of BACStel-IP, an SSL-encrypted system. Additionally, a secure, encrypted password is required, and the system is constantly monitored to ensure data integrity and user authorization.

Can BACS payment arrive at any time of day?

BACS payments are normally received by your bank by 7 a.m. If a BACS payment is not credited before 7 a.m., you will almost certainly have to wait until the next working day to get it.

Is BACS the same as bank transfer?

Yes, BACS is a term that refers to a bank transfer, and the two terms are interchangeable. In the united kingdom, there are three forms of bank transfers: BACS, CHAPS, and faster payments. All of these are domestic bank transfers in the united kingdom. Only BACS, and not any other type, can be used for direct debit payments. It can be perplexing at times, as the majority of other nations only have one method of bank payment, for example, SEPA in europe.

How to make BACS payment without a BACS service user number (SUN)?

Certain banks accept BACS payments without requiring a SUN. However, you would need to enrol in autopay online or the equivalent service at your bank.

In case you need specialist advice on "BACS payment", kindly call us on 03330 886 686, or you can also e-mail us at enquiry@dnsaccountants.co.uk.

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.