What Is Bacs Payment? The Complete Guide
Sending and receiving payments are two core pieces of running a business. When you’re trying to send or receive money, there are many options available. One of the options is Bacs. Bacs is one of the most common bank-to-bank transfers available in the UK. If you’re running a small business, having an understanding of Bacs payments is a must. Keep reading for our complete guide on Bacs payments!
Here’s What We’ll Cover:
What Is Bacs?
Bacs is a membership organization for some of the UK’s leading banks. At this point in time, 16 banks are part of Bacs. These banks are able to send and receive Bacs payments.
The Two Different Types of Bacs Payments
There are two main types of Bacs payments that can be made. They are the Bacs Direct Debit payments and the Bacs Direct Credit payments. Learn more about them both below!
Bacs Direct Debit
Direct Debits are a Bacs payment that is authorized by a customer. The customer allows an organization to collect money from their account, as long as they’re given advance notice. The authorization is given using a Direct Debit Mandate form. Once authorized, the organization can automatically take payments from a customer’s bank account.
This is widely considered to be the safest way to make payments in the UK. The Direct Debit Guarantee protects customers from fraudulent payments. In the past, this has been a method of payment only available to large corporations.
Direct Debit payments are used for regular payments. These can consist of household bills, subscriptions, or memberships. It can be used for one-time payments as well, though. Here are some of the advantages of Direct Debit payments:
- Lower cost than debit or credit card payments
- Good for recurring payments
- Protection and security through the guarantee
- Higher success rate
Bacs Direct Credit
Direct Credit payments are a popular method of bank transfer. It lets users send a payment directly to another bank account. Bacs Direct Credit payments are one of the most popular ways for businesses to make payments. They allow for electronic payment to employees, pensions, and state benefits or tax credits.
It’s estimated that about 80% of the UK workforce is paid using Bacs Direct Credit business payments. It’s available to any UK business with a bank account. This is most likely why it’s the most popular form of salary payment. Here are the advantages of Bacs Direct Credit payments:
- Removes the need for paper checks
- Has a positive impact on the environment by removing paper products and postage
- Saves money for the business overall by requiring less security and physical goods
The only drawback to Direct Credit payments is the timeline involved. There are other methods of faster payments available. Direct Credit payments take up to three days to clear.
How to Make a Bacs Payment
Follow the steps below to set up either a Bacs Direct Credit or Debit payment.
Direct Credit Payment Setup
To set up a Direct Credit payment, you’ll need to have information about the payee. This includes the payee’s name, their bank, their account number, and their sort code. The same details will be needed for any account to be debited, as well.
Direct Debit Payment Setup
With a Direct Debit payment, the customer authorizes you to take payments from their account. You’ll need the same payee information used in a Credit payment. When doing a Direct Debit payment, you’ll have three options to choose from:
- Use Bacs approved Bacstel-IP software to set up access to the bank
- Use a Bacs approved bureau
- Use a third-party vendor
How Much Do Bacs Payments Cost?
Bacs payments will require a setup in most cases, as well as software. If you’re looking to set up Bacs payments directly via a bank, you can expect to pay upwards of £5,000 to get started. The bank will also charge you processing fees. If you’re using a bureau, the costs are significantly lower to start. However, they often tack on monthly fees much higher than the banks would.
Bacs Payments are one of the best ways for businesses to make payments. They allow for a lower-cost alternative to paper checks for payroll. They also let recurring payments be set up. If you’re looking for a new way to make payments and receive payments, consider Bacs payments.
Looking for more information? Be sure to head over to our resource hub for articles like this!