BACS and CHAPS are both methods of paying money from a bank account electronically.
BACS direct credit (“BACS”)
The BACS Direct Credit system is mainly used by organisations to pay wages and employee expenses but can also be used to pay supplier invoices. There is no limit to the amount that can be paid using BACS other than the available funds in the bank account.
Payment by BACS takes three days to clear, so if a business makes a BACS payment on Wednesday by the bank’s deadline (usually between 2pm and 3pm on a working day) it will leave its bank account and appear in the recipient’s bank account on Friday.
BACS is a popular payment method as it is relatively cheap and is easy to use when making large numbers of payments at the same time; e.g. paying employees.
CHAPS
The CHAPS system is another electronic payment system. Like BACS, there is no limit to the amount that can be paid using this system. The most important differences between CHAPS and BACS are their cost and the time taken to process the transactions. Banks typically charge between £25 and £35 to process a single CHAPS transaction so it can be very expensive to use for smaller transactions.
A CHAPS payment is however, guaranteed to be paid and received on the same day (so long as it is received by the bank’s deadline).
As such, CHAPS payments are most commonly used to pay large sums where the bank charge will be relatively insignificant. For example, they are often used by solicitors dealing with property transactions.
