CHAPS vs BACS: Which one should SMEs use for payments in the UK?

5 minutes
CHAPS vs BACS: Which one should SMEs use for payments in the UK?
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As your business dealings in the UK increase, you might have come across the SWIFT, CHAPS, BACS, and Faster payment networks. Understanding how these networks function can help you decide the best way to send money to the UK from Singapore and locally. 

When a business makes a payment within the UK, funds generally travel through one of three payment networks: CHAPS, BACS, or Faster Payments Service. Although they all have the same function, they each differ in terms of transaction purpose, speed, and cost. 

SWIFT payments are offered by most banks for international money transfers specifically. A SWIFT payment is usually the most expensive type of transfer. If you’re sending any other currency aside from GBP to the UK, going through SWIFT is necessary. However, it is worthwhile to note that with fintech payment companies such as Airwallex, there is are lower-cost alternatives to sending GBP to the UK.

Keep reading to understand the key differences between CHAPS, BACS, and Faster Payments, what type of payments they’re suitable for, and an alternative method for making B2B payments within and to the UK. 

What is a CHAPS payment?

CHAPS stands for Clearing House Automated Payment System - the UK’s bank-to-bank transfer system that runs through the SWIFT network. It’s typically reserved for high-value, time-sensitive payments such as paying Corporation Taxes or purchasing vehicles for your UK enterprise. If your payment is made before the bank’s cut-off time, the funds reach the recipient’s account within the day.

CHAPS payments start from GBP 10,000, with no transfer caps and no upper transfer limit. There are over 30 direct banking participants and 5,000 financial institutions in the UK that make and accept CHAPS payments.

What is a BACS payment?

BACS stands for Bankers Automated Clearing Services. This is the bank transfer method that handles all direct debit and credit transactions in the UK. Established in 1968, the BACS system has been in operation for over 50 years, making it the system that everyone in the UK is familiar with.  

BACS is used for high-volume, low-value transactions like employee salaries, utility bills, and small payments to suppliers. They take more time to process compared to CHAPS transfers, and have a payment limit of £250,000 per transfer.

The BACS payment network is used for routine/daily payments, like regular bank transfers, payments to suppliers, and employee salaries. 

What is a Faster Payment?

The Faster Payment System (FPS) is a UK banking service designed for real-time money transfers between banks. In other words, it’s the UK equivalent to Singapore’s FAST.  

Unlike BACS which can take several days, FPS payment processing time can be in a matter of seconds. It’s also available 24/7, including weekends and holidays, making it ideal for business transactions that need to be settled immediately.  However, the limits and charges for FPS payments depend on the financial institution and the account type you are sending from.

With Airwallex’s partnership with local payment rails, we support free Faster Payments from Singapore and other countries across the world to the UK, with a maximum limit of GBP 1,000,000.

CHAPS vs BACS vs FPS: Which should you use for B2B payments? 

CHAPS BACS Faster Payments
Operated by The Clearinghouse Automated Payment System BACS Payment Scheme Faster Payments Scheme Limited
Payment use cases High-value, time-sensitive transactions worth over GBP 10,000 Direct debits, credit, supplier payments, salaries Interbank funds transfers between personal accounts, payments that must be settled quickly
Processing Time Same day 3 - 5 business days Within 2 hours

Simply put, it comes down to what business payment needs you need met.

CHAPS payments are for high value payments, such as payments for a large, expensive business asset.

BACS payments are for routine business payments that aren’t as time-critical, such as paying your suppliers or sending your staff their weekly wages.

Faster Payments are for interbank transactions that need to be settled instantly - assuming both sending and receiving banks support FPS.  

Is BACS or CHAPS faster?

BACS payments to bank accounts can take anywhere between two to three days to complete, so it isn’t an option if you’re in a hurry.

CHAPS payments are much faster, with bank-to-bank transfers completed within hours. You’re usually able to get same-day payments if your transfer is made before 3:00pm to 5:00pm that day. Otherwise, your payment will clear the following day.

Which payment method is more expensive?

BACS payments are one of the cheapest ways to transfer money between banks. You can expect to pay anywhere from 5-50 pence (~ SGD 0.10 - 1.00) (plus any additional fees charged by the banks) per transaction.

CHAPS payments are much higher. This is because your recipient’s bank account or payment partner is required to pay for access and maintenance costs for the software and hardware needed to complete your transfer. For CHAPS payments, you can expect to pay anywhere from £25-£35 (SGD 45 - 65) per transfer. As such, making a high volume of these types of payments isn’t advisable.

FPS transfers usually cost GBP 0.90 - 2.50. The fees depend on the financial institution, the bank account type the person is sending from, and how the payment is sent (i.e. standing order, one-off payment, etc). Airwallex’s FPS transfers, however, are free.

Airwallex: A better alternative to SWIFT, BACS and CHAPS

If you’re looking for a fast, cost-effective way to send business payments from Singapore or other countries around the world to the UK, get an Airwallex Business Account. We support Faster Payments for bank-to-bank GBP transfers to the UK, with a maximum limit of GBP 1,000,000. Unlike traditional banks, our Faster Payments are free of charge.

Create your Airwallex account and you’ll be able to open a UK business account in just seconds. Pay like a local, all from the comforts of Singapore.

Get in touch with us today for a demo, and see how we can help you take the hassle out of making your business payments from Singapore to business customers in the UK.

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