What Is a CHAPS Payment? Difference Between CHAPS & BACS

Operating a small business means that sometimes you’re going to have to transfer funds. It can be for making payments, purchasing property or paying tax, for example. But how do the transfers actually work and are there different ways you can do it?

Typically, when you transfer funds through your bank either locally or internationally, it’s going to happen with help from CHAPS or BACS. So what is a CHAPS payment and how is it different compared to BACS?

Here’s What We’ll Cover:

What Is a CHAPS Payment?

What Is a BACS Payment?

What’s the Difference Between CHAPS and BACS?

Key Takeaways

What Is a CHAPS Payment? 

CHAPS stands for Clearing House Automated Payment System. When you transfer funds from bank to bank, the transfer is going to get passed through the SWIFT network. This is usually meant for high-value payments that you need to send or receive on the same day. 

High-value or once-off payments might be purchasing new vehicles, acquiring new property to expand or paying tax. CHAPS has a minimum payment transfer amount of £10,000, but there are no transfer caps. There’s also no upper transfer limit, which means you could transfer £100,000 if you needed to. 

There are over 5,000 financial institutions and 30 direct banking participants that allow you to make and accept CHAPS payments. With this wide network, it makes transferring funds as easy as possible, especially for same-day transfers. 

What Is a BACS Payment?

If you make debit card or credit card transactions, they’re made using BACS. It stands for Bankers Automated Clearing Services, and it’s the most common bank transfer method in the UK. 

BACS payments are typically going to take longer to process compared to CHAPS payments. BACS is used for low-value transactions that are typically higher in volume. And the amount you’re able to transfer using the BACS transfer method is capped at £250,000. 

Think about the normal, everyday transactions and routine payments that you make. Things like paying employee wages, pension payments and regular bank transfers. These use the BACS payment network, and it’s a key difference compared to CHAPS. 

What’s the Difference Between CHAPS and BACS?

It’s all going to depend on what type of bank transfer or service you’re looking for. 

CHAPS is designed for time-sensitive payments and payments that are high-value. These can include things like making a payment on a property or purchasing a new, expensive business asset. Plus, CHAPS allows you to make these high-value payments immediately, usually on the same day. 

BACS, on the other hand, is designed for everyday payments. These payments are typically routine payments, like paying your suppliers or staff wages with direct debit. 

Aside from the total amount you can transfer and the processing times, BACS payments are going to be much cheaper. There can be additional fees charged by your bank branch per transaction, but you can expect to not have to pay more than £1 per transaction. 

Since you can transfer greater amounts with CHAPS and expect same-day delivery, there are going to be much higher fees. It can end up being anywhere from £20 to £40 per transfer. But you’re not usually going to have to make these transfers as frequently as you might with BACS. 

Your payment partner or bank needs to charge higher fees with CHAPS payments because they need to pay for certain software and hardware. This bank technology is needed to complete the transfers. 

How Long Does Each Transfer Method Take?

CHAPS, as mentioned above, offers bank-to-bank wire transfers within hours of sending them. You can often expect same-day payment if a transfer gets made before the end of the business day. 

BACS payments depend on the amount you’re sending and where you’re sending payment. But, typically BACS payments take anywhere from 2-3 days to complete. 

Key Takeaways

CHAPS payments are designed for high-value transactions that need to get processed as quickly as possible. Think about a large financial institution like Lloyds Bank Plc. They make foreign exchange transactions and money market transactions. In this case, they would use a CHAPS payment to make the transfers quickly. 

Completing high-value transactions, like buying a car, also benefit from a CHAPS transfer. It’s a good way to make or take faster payments and there are no transaction limits for sums of money. 

BACS payments are meant more for everyday transfers that aren’t as time-sensitive. Basically, most debit or credit card transactions get made using BACS. It’s the most common type of bank transfer method in the UK.

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