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What is BACS and CHAPS?


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BACS and CHAPS are payment terms within the British banking system and are methods of transferring funds from one bank account to another. They are both electronic payment systems that can be used to transfer funds between accounts of the majority of the financial institutions in the UK.

What is BACS?

BACS stands for Bankers Automated Clearing Services and are a way of making bank transfers free of charge. The downside is that they are not immediate and normally take three days from the transfer being requested by the sender and it being received by the recipient.

How BACS payments work

BACS payments can be made through a banks physical premises, over the telephone or through internet banking. The sender needs to state the monetary amount of the transfer and the account details of the recipient. The funds immediately leave the sender’s account but it takes time for it to be processed before appearing in the recipients account. The sender’s bank will enter the transfer into the system and, all being well, the transfer will be processed and cleared. This will generally take place the day after it was entered into the system with the funds eventually appearing in the recipients account the day after that.

What are BACS used for?

BACS can be used for a large array of bank transfers. The most common are direct debits, such as the payment of rent, bills and insurance payments. Businesses usually use BACS to pay their employees and state benefits are normally received via them. Individuals can also use BACS to make transfers between one another for any reason.

What is CHAPS?

CHAPS stands for Clearing House Automated Payment System and is actually a UK based company that was established in 1984. The company has a system for offering same-day transfers of funds between UK financial institutions. Unlike BACS, CHAPS are not free as the company charges institutions for the service. This is usually passed onto the customer making the transfer and on average costs between £20 and £40. There is a cut-off point for transfers to be completed on the same day as the request. This cut-off point varies from one institution to another and is usually around 3pm.

How CHAPS payments work

CHAPS transfers are initiated by the sender. They have to fill out a form detailing the amount and the details of the recipients account. Once signed this is handed to their bank who will process the payment. Assuming sufficient funds are available they will clear the transfer to go through and this will be transferred to the recipients account.
What are CHAPS used for?CHAPS are used for transfers that cannot wait three days. Faster Payments is a method of fast BACS transfers but these carry limits so CHAPS are normally used to pay for high value items such as property and cars.

Should you use BACS or CHAPS?

Whether it is preferable to use BACS or CHAPS depends on how quickly the payment needs to be received by the recipient and the size of a payment. For small value transfers that can wait three days or more BACS is preferable as it won’t cost the sender anything. If it needs to be processed immediately or is too large for BASC then a CHAPS transfer will be necessary.

Andrew Marshall ©

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