How to make a Bacs payment – a guide for businesses

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.

• Strong Customer Authentication – what your business needs to know
• Which bank has the best business bank account?
• How to write an invoice – and free template
• What type of business insurance do I need?

Bacs payment meaning

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.

How long does Bacs payment take to go through?

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.

How to make a Bacs payment: step by step

Setting up Bacs Direct Credit payments

You can make a Bacs Direct Credit payment with your business bank account or personal bank account. You’ll just need:

• payee name
• name of their bank
• payee account number
• payee sort code

Setting up Bacs Direct Debit payments

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:

• Bacs-approved software – you’ll manually make and collect payments through your bank
• Bacs-approved bureau – a third-party submits payment instructions on your behalf

Contact your bank

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.

Request a Service User Number

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.

What are the costs involved with Bacs payment?

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.

What are the benefits of using Bacs payment services?

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.

Do I need to send remittance advice when paying suppliers?

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.

More small business finance resources

• Cash flow forecast guide – and free template
• Should the self-employed consider using digital banks?
• Do I need a PayPal business account for my small business?

Is there anything else you’d like to know about setting up a Bacs payment? Let us know in the comments section below.

Photograph: mavoimages/stock.adobe.com