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Bacs is a safe and reliable way to transfer money electronically between banks. From employee salaries and business rate bills to customer membership fees and subscriptions, these can all be types of Bacs payment.
As a business owner in the UK, you’ll be sending and receiving money for lots of different reasons. But what is a Bacs payment exactly? And how do you set one up? Here’s a complete guide to get you started.
Bacs stands for Bankers’ Automated Clearing System and it’s owned and operated by Pay.UK. It’s also their job to look after faster payments and cheques.
There are two types of Bacs payment:
Direct Debit – this is when customers give you permission to collect money from their bank on a regular basis, for example for bills, subscription fees, and services.
Bacs Direct Credit – businesses use this method to make payments directly into another bank account or building society. It’s often used for large payments such as salaries, insurance premiums, supplier invoices, and customer refunds.
A Bacs payment takes up to three working dates to go through, so they aren’t designed for urgent payments. For example, if you make a payment on Monday, it’ll show up in the supplier’s account on Wednesday.
Bacs payment services for Direct Debit, however, can only be set up by businesses. You’ll need the same details as above and can then arrange through one of these methods:
Your first step is to get in contact with your bank to find out about the Bacs payment services they offer and if your business is eligible. Bacs has a list of banks that participate in the Bacs payment scheme.
It’s also important to note that you’ll need a business bank account to be able to set up a Direct Debit.
You’ll then need to request a Service User Number (SUN) for your business. This can be done through your bank and there’s various criteria you need to meet.
It’s worth saying that if your business has been operating for less than three years or has a turnover of less than £1 million, you may find it difficult to get an approved SUN from your bank. However, if that’s the case, some banks may let you collect Direct Debit payments through Bacs-approved bureau without a SUN.
If you’re looking for more information, Bacs.co.uk has more on using Bacs-approved services.
The cost for setting up a Bacs payment depends on your bank. There will usually be a setup fee (around £5,000) as well as transaction fees ranging from 5p to 50p. Meanwhile, using a bureau comes with additional costs like monthly submission fees.
You won’t be charged for receiving a Bacs payment though.
Bacs Direct Debit can be useful as it means you can collect regular payments from customers automatically, so you don’t have to worry about chasing late payments.
Whether you have a dog walking business or provide a cleaning service, encouraging customers to make regular Direct Debit payments in advance lets you control when you get paid and eases the pain of your business admin.
Remittance advice is a letter that lets your suppliers know that you’ve paid their invoice. It’s not essential, but it can help the payee with their bookkeeping as they match invoices to payments.
Your remittance advice should include the name and address of the supplier, your business name, method of payment, invoice number, and amount paid.
Is there anything else you’d like to know about setting up a Bacs payment? Let us know in the comments section below.
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Catriona Smith is a content and marketing professional with 12 years’ experience across the financial services, higher education, and insurance sectors. She’s also a trained NCTJ Gold Standard journalist. As a Senior Copywriter at Simply Business, Catriona has in-depth knowledge of small business concerns and specialises in tax, marketing, and business operations. Catriona lives in the seaside city of Brighton where she’s also a freelance yoga teacher.
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