A Bacs payment is a transaction processed through the Bacs network, a UK bank transfer. It allows both sending funds through Direct Credit (like salaries) and collecting them through Direct Debit (like bills). Each payment follows a three-day cycle before reaching the recipient’s account.
As a cornerstone of British banking, Bacs processes millions of transactions daily, ensuring the smooth running of businesses and personal accounts. According to The Bank of England, the average daily net value of Bacs payments in the first half of 2025 was about GBP 5,700 million. Whether you're getting your salary, paying bills or transferring funds across accounts, you've probably used Bacs without realising it.
In this article, we'll examine Bacs payments; what they are, how they work, the different types of Bacs transactions and much more. Let's get started.
What are Bacs payments?
Bacs payment is a UK based electronic cash transfer system that allows you to send money from one bank to another. Bacs stands for Bankers' Automated Clearing Services and refers to the network of banks and building societies that participate in the Bacs payment system.
The Bacs system was created to automate and streamline the process of moving funds between banks, thereby minimising errors and increasing efficiency. Bacs has evolved to become the primary way for processing direct debits and credits in the UK. Let's look at the types of Bacs payments.
What are the types of Bacs payments?
Bacs payment works in two main ways, which are:
Direct debit
Direct debit in Bacs payment enables merchants to collect payments straight from a customer's bank account with the customer's prior permission. This method best suits recurring payments like utility bills, subscriptions and insurance premiums.
For example, a mobile phone carrier might use it to receive monthly consumer payments. Once enabled, the provider can automatically remove the agreed-upon amount each month, ensuring that the bill is paid on time without having the consumer physically make the payment.
Direct Credit
Direct credit allows businesses to make payments directly into an individual's or another company's bank account. This method is frequently used for recurring payments such as salaries, pensions and supplier payments.
A local government council may use Direct Credit to deposit housing assistance directly into homeowners' bank accounts every month. This ensures that recipients receive their payments on the specified date, eliminating the need for physical cheques or cash transactions.
These two types of Bacs payments are vital to the payment ecosystem in the UK. They deliver a dependable and speedy payment solution for financial transactions. Bacs payment can contribute to enhancing financial operations for organisations and ensure that parties receive payments on schedule, emphasising the system's importance in modern banking.
How does Bacs payment work?
The transaction process for a Bacs payment occurs over a three-working-day period. It begins when a payment transaction (direct debit or credit) enters the Bacs system, which is called the Bacstel IP protocol. This system is a secure service for submitting, tracking and viewing payments.
Once a user initiates a payment, either as a one-time transaction or a recurring payment, the transaction joins a batch payment awaiting approval. This batch transaction is usually processed later that day, typically at night. Payments submitted on the first day are processed by banks on the second day and on the third day, the amount is taken from the payer's account and credited to the receiver's account.
Merchants and consumers must understand the duration of Bacs payments to help manage expectations and service delivery. Although Bacs does not offer the quickest processing times in the UK, its reliability and cost-effectiveness for volume transactions continue to make it a vital component of UK payment transactions.
What is the difference between Bacs, Faster Payments and CHAPS?
In the UK, there are three main electronic payment systems: Bacs, Faster Payments and CHAPS (Clearing House Automated Payment System). To varied degrees, they enable merchants to choose the best method according to their unique requirements, such as speed, cost and transaction amount.
Transaction processing speed
Bacs, Faster Payments and CHAPS have considerably varied processing speeds. Bacs transfers are the slowest because of the three-day payment processing period and batch settlement system. Moreover, Bacs payments aren’t settled on weekends and bank holidays. The scheme itself doesn’t have a cut-off time; however, banks may have their own cut-off times.
On the other hand, Faster Payments offers faster transaction settling compared to Bacs. It often takes anywhere from a few seconds to two hours to complete, operating 24/7, including weekends and bank holidays.
Alternatively, CHAPS is open from 6:00 to 18:00 and is intended for same-day processing, as long as the transaction is initiated before the cut-off time of 18:00. Many banks, however, set earlier deadlines between 15:00 and 17:00, which can vary depending on their policy or account type. Moreover, CHAPS payments are not available on weekends or bank holidays.
Limits on transactions
The limits on transaction volume differ between these payment options. Bacs payments are often used for bulk processing rather than for single extremely large sums. There is no strict scheme wide upper limit, however, banks may set their own limits. Bacs payments are mostly suited to routine, regular payments that are predictable, scheduled and not urgent.
Alternatively, Faster Payments accept transactions of up to GBP 1 million per transaction. As some banks may establish lower limits, clients should verify with their respective banks for accurate figures. Faster Payments are best for low to medium value transactions and ideal for everyday, non-scheduled payments.
CHAPS has no higher limit, while individual banks may set their own limits which are often very high. CHAPS is used for high value, time-sensitive payments. They are most suitable when sums are large, deadlines are tight or settlement must be guaranteed the same day. The CHAPS network is appropriate for major business transactions, real estate acquisitions and other substantial financial transactions.
Cost and fee comparison
The cost structures for Bacs, Faster Payments and CHAPS mirror their respective features. Bacs is the most cost-effective option, particularly for bulk processing, although its delayed processing time can be a disadvantage.
Faster Payments typically charge low to no costs for personal and small business transactions, providing a balance of speed and cost.
While CHAPS offers same-day settlement and no transaction limits, its higher fees reflect its specialised use for high volume and time-sensitive payments.
Typical use cases for each method
Bacs payments are widely used for routine and recurring transactions. Businesses use them for payroll, making them the default way most employees in the UK receive their salaries. They are also the backbone of direct debits, which cover regular household expenses such as utility bills, subscriptions and insurance premiums. Thanks to their ability to process large volumes at low cost, Bacs is also chosen for pensions and bulk supplier payments.
On the other hand, Faster Payments are designed for everyday transfers that need to move quickly. They are commonly used for sending money between personal accounts, paying friends or family and covering smaller business expenses such as contractor payments or urgent supplier invoices. They are also a popular choice for refunds and online transactions, as funds typically arrive within seconds and outside of banking hours.
Looking at CHAPS, it is mainly used for high value or time critical transactions. It is a preferred method for property purchases, tax obligations and large corporate transfers. Although fees are higher than other methods, the reliability and guaranteed timing of CHAPS make it essential for financial operations where delays could carry significant risks.
What are the advantages and disadvantages of Bacs payments?
According to the Bacs annual processing statistics in 2023, mobile telephone billings were the most popular option for Bacs direct and credit payments in the utilities and house sub-sector. Let's look at its major benefits and drawbacks.
Advantages of Bacs payments
Cost effective
Bacs payment is often cheaper than conventional payment options like cheques or wire transfers. Its cost efficiency can assist merchants in lowering their costs for managing a high volume of transactions.
Payment automation
Bacs payment can be automated, reducing the requirement for manual involvement. This streamlines payroll and other monthly payments from individuals or businesses, minimising the need to pay associated costs. It makes their financial management easier and more efficient.
Convenience
Bacs payments are a simple and dependable method for making periodic payments for salaries or supplier invoices. It offers options for easy account reconciliation.
Disadvantages of Bacs payments
Processing time
Bacs payment may take longer to process than alternative methods, such as Faster Payments or CHAPS. This makes it less suitable for urgent or time-sensitive payments, where speedier payment options may be preferable.
Limited flexibility
Bacs payment has limited flexibility. For instance, it cannot be processed instantly on weekends or holidays. There are also cut-off times and some financial institutions place limits on transaction volume based on their preferences. Further, Bacs is only utilised in the United Kingdom rather than for overseas transactions that will need alternative payment methods.
No real-time tracking
Unlike Faster Payments, the Bacs system lacks the capability for real-time tracking of payments. This means that individuals and businesses do not have immediate visibility into the exact status of their transactions. As a result, there is greater uncertainty around when payments have been processed or received. This delay in confirmation can cause inconveniences, particularly in time-sensitive situations, such as meeting payment deadlines or ensuring funds have cleared for crucial transactions.
Bacs payments FAQs
How long does a Bacs payment take?
Bacs payments usually take three working days to clear. Day one is when the payment is submitted, day two when it is processed by the banks and day three when the money reaches the recipient’s account.
Are Bacs payments safe?
Yes. Bacs is operated by Pay.UK and is currently overseen by the Payment Systems Regulator (PSR). It uses strict security and compliance standards to protect businesses and individuals alike.
Do I need a special account to use Bacs payments?
Businesses typically need to set up a Bacs approved service through their bank or payment provider. For everyday personal use, most UK current accounts already support receiving Bacs payments such as salaries or benefits.
Can Bacs payments be cancelled?
Yes, some banks can cancel Bacs payments before they have been fully processed, but this is not guaranteed.
What is the cut-off time for Bacs payments?
Most banks have a cut-off time, usually in the late afternoon, for submitting Bacs payments. Anything after this will roll over to the next working day.
Are there fees for using Bacs payments?
Bacs payments are low cost compared to other methods, but fees vary depending on your bank or payment provider.
Can I track a Bacs payment?
You cannot track it in real-time, but you can confirm once the funds have arrived. Some banks provide status updates during processing.
How emerchantpay can help
Every business has different priorities when it comes to payments. Some value predictable recurring collections and others are looking to grow into new markets without adding complexity.
emerchantpay brings these needs together in one platform. We support recurring payment options such as SEPA Direct Debit in Europe, as well as a secure payment gateway, global acquiring, an extensive range of local and alternative payment methods and robust risk solutions.
Alongside our technology, we give every merchant dedicated support. A dedicated Account Manager and Risk Analyst work with you to improve performance, reduce fraud and support your day to day needs. It’s a partnership designed to help you handle today’s payments and prepare for tomorrow’s growth.
Talk to our team today to explore the right payment mix for your business.