What is difference between Bacs and Chaps payment?

When it comes to making bank transfers in the UK, there are several options available to you. Two of which are Bacs and CHAPS payments.

But which is the best system for you and your business? It all depends on the size of the transaction and the speed with which you'd like it to be paid.

Here, Interbacs outlines the features and benefits of CHAPS vs Bacs and explains why you might choose one over the other.

What is a Bacs payment?

Bacs stands for Bankers' Automated Clearing System and refers to the network of major banks and building societies that take part in the scheme.

Payments made through this system are bank-to-bank transfers comprising either Direct Debits that take money from an account or Direct Credits that deposit money into an account. Bacs is the most popular payment system in the UK, processing 100 million transactions daily.

Bacs payments limit covers payments of up to £20 million per payment transaction, however, the bank may impose a lower limit on clients for Bacs transactions.

Bacs transfers are an extremely cost-effective solution and one of its main benefits is that it is much cheaper than CHAPS and the fact that it is cost-effective is the reason that many businesses use the Bacs payment scheme to pay their staff and suppliers.

However, where it falls behind CHAPS is the fact that it is much slower to process payments. It takes three business days to clear payments in total, with the process looking very much like this:

Day 1 - A payment file is submitted to the Bacs payment system before an official cut off time.
Day 2 - The bank processes this file
Day 3 - The Bacs payment is credited to the receiving account. (Often just after midnight, however, some new challenger banks are even depositing the money at 5pm on day 2)

Nevertheless, despite the slower processing time, Bacs payments remain the industry standard for most business transactions. Scheduling regular payments is a simple process and a lot of payroll software is compatible with Bacs.

What is a CHAPS payment?

CHAPS, or the Clearing House Automated Payment System to give it its full title, is an alternative bank-to-bank transfer system for UK transactions.

The difference between CHAPS and Bacs payments is that the former are solely intended for same-day, high-value bank transfers. CHAPS is specifically designed for larger payments amounting to more than £10,000 pounds (with no upper limit) that are time-sensitive.

For that reason, CHAPS payments are the preferred option for large financial institutions or individuals wishing to make a time-sensitive payment for high-value items, like purchasing a car or paying a house deposit.

As long as the payee meets their banking institution’s deadline (which is normally around 3 pm) a CHAPS payment can often take a mere matter of hours to reach the recipient's bank account.

So far, so good. However, there is a downside to CHAPS payments and that is their cost. Moving large sums of money does not come cheap.

In fact, charges can be as much as £25-£35 per transaction depending on the financial institution handling the payment. Of course, if you need to make a payment the same day this is a fee worth paying. But if you are making a smaller, less time-sensitive payment, Bacs is a better option.

Finding the right payment solution for you

With so many options to choose from when it comes to a payment solution for your business, finding the right fit can be tough.

However, we've made the process a simple affair thanks to our Solution Finder. By answering a few simple questions, you can discover the ideal fit for your business and begin your journey towards a more streamlined payment process.