BACS is the name given to the direct payment system used by many companies around the UK for payroll and other services. The system is operated by BACS Payment Schemes Limited, a membership system comprised of the 19 leading banks and building societies in the country. But how does the system work and are there alternatives for wage payments?
Currently, there are two main systems within BACS – BACS Direct Credit and Direct Debit, perhaps one of the most well-known payment systems. In 2015, there were some six billion payments made through these two systems combined in the UK at a value of over £4.4 trillion. But what is the difference between the 2 main systems?
Direct debit is used mostly to take a payment – most people will pay a number of these for utility bills, mobile phone contracts and other subscription services. Banks can automatically take money from an account once a mandate is set up although they do have to notify the account holder about changes of amount or date ahead of time. While typically used by big companies, a larger amount of smaller companies are now using this feature due to the range of payment providers available.
BACS direct credit is also referred to as a bank transfer and is used to make payments into an account. It is used to deposit benefit payments, state pension and salaries with almost 90% of the UK workforce receiving their wages through this system. It is a cost-effective and simple system used to make regular payments but does take around three working days to make that payment.
Other payment systems
While these two methods have the monopoly on the payment taking and making business in the UK, there are other ways you can send and receive money.
Faster Payments was introduced in 2008 and offers near real-time payments between bank accounts based in the UK. These are electronic payments that can be processed online, over the phone, through self-service kiosks or even in a bank branch. Normally, the payments take less than two hours to show in the account. They are most commonly used to make multiple transfers or small amounts of money such as for bills, supplier payments, expenses and transfers between personal accounts.
CHAPS or Clearing House Automated Payment System is a company that offers bank to bank transfers for high-value amounts in the UK. It guarantees same day payment as long as the instructions are received before 2pm on a working day. There’s no limit to the amount you can send but there is a charge for the service, with banks often charging around £35.
Using the right payment option
Most companies will use BACS to pay their staff on a monthly basis. It works easily with payroll software to ensure everyone is paid correctly and is relatively quick. You do need to plan your payroll ahead however, as payments are only processed during weekdays. So, if pay day falls on a Saturday or Sunday, you need to take steps to ensure staff are paid on the Friday before this in most cases.
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