Whether you’re starting a new company or are already well established, deciding how your customers can pay you is one of the most important operational choices you can make.
As is often the case with financial decisions, choosing a payment method means getting to grips with the jargon and understanding the features that each of the major options bring.
In this article, we look at the UK’s top payment methods – CHAPS, BACS, SWIFT and Faster Payments – to give you all the information you need to decide on the right approach for you.
What are CHAPS payments?
CHAPS, which stands for “The Clearing House Automated Payment System”, has been operating since 1984 and takes up a large proportion of high value payments made in the UK. CHAPS is typically used for time-critical payments involving larger sums of money worth over £10,000.
Funds will generally reach the recipient’s account within three hours of the payment being authorised.
The CHAPS system is managed by the Bank of England, and whilst it is equipped to make fast payments, it only operates between 6 am and 6 pm each Monday to Friday (excluding public holidays) in England and Wales.
There are no set limits for CHAPS payments, but it is worth keeping in mind that processing fees for a CHAPS payment can reach as much as £30 per transfer.
What are BACS payments?
BACS, an abbreviation of “Banker’s Automated Clearing Services’, has been in operation since 1968 and is widely used to make bank transfers within the UK.
Most people will have received a BACS transfer at some point, as the system is commonly used by employers to process payroll.
BACS payments are very cheap, at only a few pence per transaction.
The drawback of this, however, is that BACS payments take a minimum of three working days to reach a recipient’s account from the date of authorisation.
BACS can also be used to take direct debit payments directly from the accounts of customers who authorise them.
This convenient payment method is only possible for businesses that have been approved by Bacs Payment Schemes Limited – a collection of the UK’s leading banks that manage the system.
What are SWIFT Payments?
SWIFT, shortened from the tongue twisting “Society for Worldwide Interbank Financial Telecommunication”, is a system used by UK banks to complete international money transfers. SWIFT uses a series of foreign and domestic banks to make sure that money reaches the intended account through a string of transactions.
SWIFT payments can be expensive – with a fee that typically ranges between £25 – £40 in addition to any processing or holding fees that are added by foreign banks.
Exchange rates can also play a role in influencing the amount that is credited to the recipient so it’s worth thinking of this before you authorise a SWIFT payment.
How do faster payments work?
First becoming available in 2008, faster payments allow people to move money quickly and securely at all times of the day.
Transfers made via faster payments are usually processed within a matter of seconds and are subject to a maximum transaction limit of £250,000 (although the limits and rates of different providers may vary).
Although slightly more expensive than BACS payments, faster payments reach their target accounts within a much shorter period and offer a good mid-point between the speed of CHAPS and the low cost of BACS.
How long does faster processing take?
For businesses that take most of their payments via a card machine or online checkout terminal, the decision of which payment method to use will often be limited to the options made available by their payment solutions provider.
In many cases, this means accepting processing times that come close to the three days of BACS whilst shouldering costs for merchant service charges.
Fortunately, there are alternatives available. One option is Faster processing, a payment solution that is exclusively offered by UK merchant services provider UTP.
Businesses using faster processing are guaranteed to receive their funds within 1 day of a transaction being made with most being processed within the hour.
Businesses can also tailor the service to their needs by choosing whether to receive payments as individual deposits or in more consolidated hourly or daily tranches.
Solutions like UTP’s faster processing can make life easier for small businesses in particular, as speedy and convenient payments could help to limit cash flow concerns.
Which is the best payment method for UK businesses?
Unfortunately there’s no one-size-fits-all payment solution that UK businesses can rely on for the full range of transactions.
Which payment method works for you will depend on the kind of transactions you and your customers are making on a regular basis.
In general terms, keeping these points in mind could help you to decide what’s best for your business:
- SWIFT payments are most often used for international bank transfers and whilst they offer a convenient way of transferring money into a foreign account, they can be costly.
- BACS provides a helpful mechanism for paying or receiving direct debit payments, with a low cost but a longer processing period.
- CHAPS payments are an expensive albeit instant way of transferring money within the UK. CHAPS is most frequently used for transferring money worth over £10,000 as part of significant transactions such as the purchase of a house.
- Faster payments provide a good middle ground for businesses that need their bank transfers to be made quickly but at a low cost.
- Card machine merchant services solutions such as UTP’s faster processing bring the convenience of same day funding down to an affordable level so that businesses can take card payments without cash flow worries.
Choosing a payment method that is convenient for customers is vital to the success of a business but making sure that your chosen solution suits you is just as important and could make all the difference to your financial stability.
