What are Bacs Payments and How to Use Them

For businesses, efficient payment systems are highly desirable. Not only do they help in paying suppliers and employees on time, they help to ensure your cash flows are healthy and your business is sufficiently protected from unwanted risks and payment delays. Within the UK, the Bacs payment system has been widely popular. It is mainly used to pay salaries, benefits and dividends, or make supplier payments directly to their bank accounts. In 2020, Bacs processed 6.5 billion payments, at a value of £4.9 trillion. In 2021, Bacs processed over 4.6 billion Direct Debit payments. In this blog, we talk about what Bacs is and how a business can use it to make payments.

What is a Bacs Payment?

A Bacs transfer is a type of bank-to-bank transfer that is widely used in the UK. The Bacs system is managed by Pay.uk.
There are two main types of Bacs payment:

• Direct Debit – where one party is authorized to pull money from the bank account of another party. These are mostly used for recurring (or one-off) payments.
• Direct Credit – where one party deposits funds in another party’s account. These are mostly used for making regular payments like payroll, pensions, etc.

How long does a Bacs payment take?

Bacs payments usually take three business days to clear. Payments are submitted on day 1, processed by banks on day 2, and funds are deposited to the recipient’s account on day 3.

Are Bacs payments safe?

Bacs are totally safe and provide an easy way to make high-value payments, such as payroll or state benefits. Since 1968, Bacs has been used to make over 130 billion transactions and has never misplaced a payment. Bacs uses Bacstel-IP, a system that comes with SSL encryption. It uses encrypted, secure passwords, and the system is regularly monitored to keep fraud at bay.

Types of Bacs payments

1. Bacs Direct Debit
Bacs Direct Debit is one of the best and safest ways to make recurring and one-off payments within the UK. In a Direct Debit, a customer authorizes a business or merchant to pull money from their bank account. The customer is given an advance notice of the payment due date, amount due, etc. The customer gives their consent by filling up a Direct Debit mandate, either in a paper form or online form. Once authorization is complete, the business or merchant can automatically pull funds from the customer’s account. These payments can be used for recurring payments such as bill payments, subscriptions, installment payments, etc.

Direct Debit payments are quite safe because they offer a Direct Debit Guarantee to customers to keep them secure from fraud or payments made by mistake. Direct Debit also costs less per transaction than credit and debit cards. Unlike cards which can expire, stolen, or lost, Direct Debit is more future-proof, with lesser chances of failed payments. Direct Debit is quite popular in the UK, with 90% of UK residents using it to pay their regular bills. As per UK Finance, 4.6 billion payments were made by Direct Debit in 2021, processing over £1,243 billion. This is expected to grow to over 5 billion payments by 2024.

2. Bacs Direct Credit
Bacs Direct Credit allows businesses and organizations to make payments directly into another party’s bank account. This is a popular method for businesses in the UK to make regular payments, such as payroll, pensions, benefits, etc. Each year, over 2.1 billion Bacs Direct Credit payments are made. In the UK, 80% of the workforce is paid through Bacs Direct Credit. Bacs Direct Credit is easier to handle and cheaper than other methods such as paper checks or cash. They are also more secure from fraud. Bacs Direct Credit also gives a business more control and visibility into their cash flows, which makes it easier to accurately forecast and plan our operations. Any business with a UK bank account can use Bacs Direct Credit.

How to make Bacs payments?

Bacs Direct Credit
You can make a Bas Direct Credit payment to any bank account in the UK using your personal or business bank account. To make this payment you need:

• Name of the payee
• Name of the payee’s bank account
• Payee’s bank account number and sort code.

You also need to share the same details for the payer account (the account from which fund are debited).

Bacs Direct Debit
To make a Bacs Direct Debit payment, you will need:

• Name of the payee
• Name of the payee’s bank
• Payee’s bank account number and sort code.

To collect Direct Debit payments, you can use any of the following methods:

1. Use the Bacs-approved Bacstel-IP software to set up direct access via a bank.
2. Use a Bacs-approved bureau.
3. Work with a third-party provider.

How can Novalnet help?

If you are a business in the UK, we can help you use Bacs payments. Novalnet is a global PSP, trusted by Europe’s leading brands to handle their payments. Our state-of-the-art technologies and methods help you accept payments globally. From our instant payment plug-ins to our AI-based risk management tools, we have the resources to get your payments up and running in no time, and with zero hassle. Reach out to us today to know more.

Jose Augustine

Jose Augustine is the Chief Business Development Officer at Novalnet with extensive experience in European payment industry and a knowledge powerhouse.