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What is the Bankers’ Automated Clearing System (BACS)?

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Originally known as Bankers’ Automated Clearing System (BACS), BACS Payment Schemes Limited clears and settles direct debit, BACS direct credit, and current account switch service in the United Kingdom. It is under the ownership of Pay.UK, a national payment system operator that runs several retail payment schemas.

What are BACS payments?

BACS ensures that financial transactions flow from one bank account to another throughout the UK. The system allows account holders to make payments and manage their bank accounts in three ways:

Direct Debit: Direct debit is when an account holder authorizes an automated money withdrawal from their bank account. These types of payments are usually for repetitive transactions, such as bill or credit card payments.

BACS Direct Credit: BACS direct credit allows an outside party to deposit funds into a person’s or organization’s bank account. This service is commonly used by companies that pay employee wages, payrolls, and other work-related expenses.

Current Account Switch Service: For businesses that want to transfer their accounts to another financial institution, current account switch service allows for a quick and smooth transition. For instance, if the business wants to create a new account with another bank, this service transfers their balance and all past activity, effectively closing the former account.

To process direct debit and BACS direct credit, BACS requires verification of the recipient’s identity, such as their name, the name of their bank, their bank account number, and sort code. The processing time for both direct debit and BACS direct credit can take up to three business days.

Who is BACS for?

As a 54-year-old payment system in the UK, BACS is frequently used by individuals and businesses alike. BACS services essentially streamline business-to-business transactions, especially for repeat customers and regularly scheduled bulk payments. Some examples of recurring payments include payroll, utility bills, memberships, insurance settlements, and employee benefits.

What is the origin of BACS?

Before the 1960s, check processing and clearing was entirely manual, leading to long processing times and frequent human error. In 1968, Dennis Gladwell of the Joint Stock Banks Clearing Committee, established the Inter-Bank Computer Bureau to streamline payment transactions without requiring physical documents. To reflect these advancements, the organization was renamed the Bankers’ Automated Clearing Services in 1971.

What are the benefits or drawbacks of BACS?

Although BACS is widely used and trusted, if account holders need payments to clear faster than three days, they may opt for Faster Payment Service (FPS), which can process transactions on the same day.

However, FPS does not allow funds that exceed £250,000. For this reason, businesses tend to rely on BACS payments for larger, recurring payments. Because BACS charges low transaction fees for businesses—anywhere from £0.05 to £0.50— its payment structure is especially attractive to those who engage in recurring and bulk payments.

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