All You Need to Know About BACS and Faster Payments

There are a few options available when it comes to paying your employees in the UK. BACS and Faster Payments are the two most used payment methods. Regardless of whether you work for a large company that handles a high volume of payments or a startup looking for flexibility and better cash flow. In this article, we explain the key differences between BACS and Faster Payments.

What is a BACS Payment?

BACS stands for Bankers Automated Clearing Services. BACS payment is a computerized method used by banks to transfer money between several bank accounts. All types of transactions including processing payroll, direct debits and creditor payments are handled using this system. BACS is overseen by BACS Payment Schemes Ltd, the regulatory agency tasked with streamlining financial processes such as payroll processing, direct debits, and creditor payments.

BACS handles many key elements of the UK's payment systems. In addition to offering BACS Direct Credits, it also manages the Direct Debit system. BACS Direct Credits were created by the UK banking industry to allow businesses to send a range of payments directly to customers bank. BACS is commonly used by businesses and government agencies to pay salaries and benefits. Individuals will not send money via BACS Direct Credits. A BACS Direct Credit usually takes three working days to reach the recipient's account. For example, if you receive a BACS payment on a Monday, it should show in your account on Wednesday. A business or employer will need your account number, account holder name and sort code to set up a BACS transfer. Payments from BACS will only be credited to accounts Monday to Friday, and they only come once a day, usually early in the morning. Your employer may choose to send the BACS payment early, so if your earning is on a Saturday or Sunday it will arrive on Monday. However, employers will usually ensure that credit is paid sooner rather than later.

What is a Faster Payment?

As the name suggests, Faster Payments is a faster option than BACS. They are a quick way to transfer money between bank accounts that usually takes only few seconds. You don't have to wait hours or days to get paid when you use Faster Payments. The money usually appears in the other person's account immediately when you initiate the transfer.

Faster Payments was established by the banking sector in 2008 to enable real-time payments between UK bank accounts. Faster payments can be made online, over the phone, in branch or using card machines. Money can be sent quickly between accounts through Faster Payments. Although they are usually quick, in some cases, payments can take up to two hours. Again, the account number and sort code of the recipient to whom you are paying are two pieces of information required to make this type of payment. You should also include a reference so that the person receiving the payment can easily identify the payment.

Advantages and Limitations of Using BACS

Advantages and Limitations of Using Faster Payments

BACS vs Faster Payments

Speed: Faster Payments is much faster than BACS as it only takes a few seconds or minutes.

Risk factor: Using Faster Payments does not automatically carry higher risk. however, using BACS may be slightly more risk-free. They're both secure and safe.

Costs: BACS is generally less expensive, with either no user fees or low transaction fees, especially when moving large amounts of money.

Making modifications: BACS allow less time for modification, but Faster Payments cannot be reversed due to their instantaneous nature.

Transaction size: As Faster Payments completes transactions faster than BACS; they are generally used for low to medium value transactions.

Faster Payments are generally considered safe and secure. The system incorporates several security measures to protect user data and transaction information. BACS take longer to process than other payment methods, so this alone makes them a little more secure. The faster processing time of Faster Payments may come with some risks in terms of fraud detection and client awareness. However, these risks can be easily minimised with careful monitoring and strong safety measures. Advancement of open banking services is another factor that will drive Faster Payments in the coming years. Open Banking enables account-to-account payments for online purchases instead of card readers or PayPal. In terms of regulation and oversight, the financial authorities oversee both Faster Payments and BACS, so if security is your primary concern, there isn't much difference between the two systems.