When transferring money, the two main types of payment you can are CHAPS and Bacs. While both options are suitable for high-value transfers between businesses, offering great security and reliability, there are key differences that make them more suitable for certain use cases. So, which one should your business use?
In this guide, we’re going to explore the differences between Bacs and CHAPS, including how long the transfer takes, and which applications they’re suitable for.
CHAPS stands for Clearing House Automated Payment System. It’s a method for making same-day money transfers in pound sterling between UK bank accounts, with payments clearing in just a few hours.
CHAPS is typically used for one-off high-value payments, partly due to the fact that the per-transaction fees are more costly compared to the Bacs payments system. As a ballpark cost, it’s around £30 per transaction – so while it’s a quick and easy payment method, it can get expensive.
Businesses tend to use CHAPS for making large payments, such as purchasing property, equipment or vehicles.
Bacs stands for Bankers Automated Clearing Services. It transfers money in pound sterling directly between UK bank accounts, and takes a couple of days to clear.
Bacs is usually used for low-value transactions, and there is a limit to the amount that can be transferred in a single payment. If you’ve ever made a direct debit or direct credit transaction, then you will have used the Bacs system.
Businesses tend to use Bacs for routine payments, such as salaries, payments to suppliers, and instalment payments.
Not all banks offer CHAPS services, so you need to make sure that you have access to it, and that your business and its account is eligible. Depending on your bank’s procedures, you may be able to initiate a CHAPS payment through online banking, telephone banking, or in person. Make sure you know your bank’s cutoff times for CHAPS payments, and make your transaction before this if you need to make a same-day transfer.
To make a CHAPS payment, you’ll need to know the payee’s name, bank account number, sort code and the amount to be transferred. You’ll then need to either enter these yourself through your online banking system, or supply them to your bank over the phone or in person. Depending on your bank’s security measures, you may need to provide additional authorisation such as entering a security code or providing identification.
Once you’ve verified all the details, you can confirm the CHAPS payment and schedule it to be processed on the same day, or at a later date. CHAPS payments typically need to be initiated during the bank’s working hours to ensure same-day processing.
Your bank will process the CHAPS payment on the agreed-upon date. The funds will be debited from your account and transferred to the recipient’s account on the same business day.
Not all corporate bank accounts offer access to Bacs payments as default, so you may need to set this up first. This involves applying for a Bacs Service User number (SUN) from your bank. Once this is set up, you can either make Bacs payments directly through your bank, or use third-party Bacs software (sometimes referred to as a Bacs Approved Bureau).
Whichever of the two options you choose, you’ll need the payee’s name, bank account number, sort code and bank name. If you’re paying multiple recipients through a single Bacs transaction, you’ll need this information for each individual payment. You’ll also need the details of the payment amounts, as well as any reference information that’s required to identify the transactions.
Whether you use your own software or contact the bank, you’ll need to set up a new payment and enter this information. A Bacs payment can be made up of multiple smaller transactions, which are added individually as ‘lines’ just like adding multiple items to a single invoice. Some banks charge per line when making a Bacs payment.
After you’ve entered all the necessary information, you can choose the date for the payment to be processed. Bacs payments take several days to clear, so need to be scheduled with this in mind to ensure that payments are made on time. Depending on your bank’s security measures, you may need to provide additional authorisation, such as entering a security code, to confirm the transaction.
Once confirmed, your bank will process the Bacs payment on the scheduled date. The funds will be debited from your business account and credited to the recipient or recipients within a few business days.
Both Bacs and CHAPS are types of bank transfers, so choosing between them really comes down to the specific service you need. Let’s look at the key differences between the two in more detail.
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CHAPS |
Bacs |
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Speed of transaction |
CHAPS is used for time-sensitive payments. Provided you’ve made the transfer prior to the cut-off time, your payment will arrive on the same day. This cut-off is between 3 pm for in-person payments, and 5 pm if you’re making the payment online.
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Bacs is used for payments that aren’t as time sensitive. They can only be processed on business days and can be submitted between 7 am and 10.30 pm. Once made, Bacs payments usually take 2-3 days to clear, so they aren’t suitable for urgent transactions. Bacs payments typically arrive in the target account by 7 am on the day they clear.
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Transaction charges
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CHAPS is a more expensive payment option because your bank has to pay for the software and hardware needed to complete the transfer. It costs somewhere between £25 and £35 per transaction, so CHAPS tends to be reserved for high-value transactions.
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Bacs is a much cheaper way of transferring money between banks. Costs vary from 5p to 50p per transaction, so these types of payments are more suitable for low-value transactions.
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Set up cost |
Banks may charge an initial setup fee for CHAPS access. They might also require businesses to meet certain criteria or maintain specific account balances to access the CHAPS service.
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Many banks offer Bacs payment services as part of their standard business account packages, with no additional setup fees. However, businesses may need to invest in accounting or payroll software compatible with Bacs processing, which could incur separate costs.
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Number of recipients
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There’s no ceiling on how much you can transfer through CHAPS. This makes it ideal for securely making high-cost purchases like property or vehicles.
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A single Bacs transaction is made up of one or more ‘lines’ or individual payments. This means that once the Bacs request is processed, a lump sum is taken from the payee’s bank account and used to make the individual payments to each recipient. There’s no limit to how many lines a single Bacs transaction can have, as long as the amount paid falls below the transaction limit.
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Transaction amount
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There’s no ceiling on how much you can transfer through CHAPS. This makes it ideal for securely making high-cost purchases like property or vehicles.
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Because it’s meant for use with lower value transactions, Bacs enforces a ceiling of £250,000 per unique transfer. You can, however, set up multiple Bacs payments on a single day if needed.
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Cancellation |
If a CHAPS payment has already left your account, it can’t be amended or cancelled. However, if the payment has been arranged for a date in the future, you may be able to contact your bank to cancel the request.
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Bacs payment instructions can be issued up to 30 days before a payment is due to be taken. They can be recalled as long as the bank is notified before a specific cut-off time, which is usually a few days before the payment date. After the cut-off, Bacs payments can’t be recalled, cancelled or amended.
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Security |
As they tend to deal with higher transaction amounts, CHAPS payments offer a higher level of security than other electronic bank transfers. They are only available to a closed network of financial institutions, which have to be approved. Operated by the Bank of England since 2017, this network is highly secure and highly regulated.
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Bacs payments are also a safe and reliable way of making transactions between different accounts. They use a system called Bacstel-IP, which is protected by SSL encryption and is constantly monitored to validate data and user authorisation. Making a Bacs payment also requires a secure, encrypted password.
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Whether to use CHAPS or Bacs comes down to the specific needs of your business and the types of payments you make. The CHAPS transfer system is designed for larger, one-off payments, while Bacs is better suited for regular, lower-value transactions. You’ll also need to consider payment clearing times, as well as the set-up costs, per-transactions fees and administrative requirements for each type of payment.
It’s also possible for your business to use both methods. For example, you might use Bacs to pay employees and suppliers, and CHAPS for occasional, large payments. You can also combine these with other methods such as Faster Payments, cheques and card payments as needed.
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