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Difference Between BACS and CHAPS
In the United Kingdom, two payment methods are used: BACS and CHAPS. BACS is an abbreviation for Bankers' Automated Clearing Services, and CHAPS is an abbreviation for Clearing House Automated Payment System. Both systems are used for electronic payments, but there are a few important differences between them.
Read this article to find out more about BACS and CHAPS and how they are different from each other.
What is BACS?
BACS (Bankers' Automated Clearing Services) is a UK-based electronic payment method. It is a system that allows financial institutions to electronically transfer funds from one account to another. Bacs Payment Schemes Limited, a subsidiary of Pay.UK, the UK's main retail payments authority, manages the system.
BACS is used for low-value, high-volume transfers like direct debits and direct credits. Companies use direct debits to gather recurring payments from their customers, such as utility bills and mortgage payments. Suppliers and workers are paid using direct credits.
A company must have a BACS-approved software package in order to generate and submit payment files to the BACS system. The software package will allow the business to receive reports from the BACS system, such as payment confirmation and rejection.
BACS payments are normally low-cost and are frequently used for routine payments that do not require instant settlement. They are not ideal for urgent or high-value payments because they can take several days to clear.
What is CHAPS?
CHAPS (Clearing House Automated Payment Method) is a UK-based electronic payment method. It is a system that allows financial institutions to electronically transfer large sums of money from one account to another. CHAPS Co., a subsidiary of Pay.UK, the UK's main retail payments authority, manages the system.
CHAPS is used for high-value, immediate payments like real estate purchases and company transactions. CHAPS payments are settled the same day they are made, making it a quick and efficient method to transfer large sums of money. CHAPS payments are more expensive than other payment options.
A CHAPS-approved bank account is required for a business to use CHAPS. The company must then tell their bank to process the payment through the CHAPS system. CHAPS payments are processed separately and settled on the same day they are made, as long as they are made before the bank's cut-off time. The deadline is typically around 3 p.m.
CHAPS payments are usually more expensive than other payment methods because the banks involved in the transaction charge fees. These fees may differ based on the amount transferred and the banks concerned.
Difference between BACS and CHAPS
The following table highlights the major differences between BACS and CHAPS −
Characteristics |
BACS |
CHAPS |
|---|---|---|
Type of payment |
High-volume, low-value payments |
High-value, urgent payments |
Processing time |
It takes several days. |
It takes same-day settlement. |
Payment Size |
BACS are typically for smaller amounts. |
CHAPS are typically for larger amounts. |
Payment Cost |
Low-Cost |
Expensive |
Payment frequency |
Regular payments |
One-time or irregular payments |
Payment method |
BACS uses batch processing as a payment method. |
CHAPS uses the individual processing payment method. |
Payment approval |
It can be automated. |
It requires manual approval. |
Conclusion
In conclusion, BACS and CHAPS are two different payment methods in the United Kingdom. BACS is a high-volume, low-value payment system that is commonly used for routine payments. CHAPS is used for high-value, time-sensitive payments that must be resolved on the same day. The primary difference between the two payment systems is the payment speed and cost.
BACS payments are slower but less costly, whereas CHAPS payments are faster but more expensive. The payment system to be used will be decided depending on the payment's particular needs and the transaction's urgency.
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