This informal CPD article ‘Why making payments by Bacs Direct Credit makes sense!’ was provided by Movimo, who help organisations improve their Direct Debit and Bacs Direct Credit processes to ensure successful, stress-free payments.
When making payments out of an organisation – for example to pay suppliers for goods or services or to pay staff their salaries and expenses - a business must choose which payment method to use. Often the choice is between:
- Bacs Direct Credit. This is a simple, secure, and reliable electronic payment method, regulated by Pay.UK. Organisations (known as a service users) are sponsored by a bank to use Bacs Direct Credit. They ‘push’ payments from the organisations account to a beneficiaries bank / building society account.
- Faster Payments. This is an electronic payment method widely used by consumers (e.g. via online or banking apps) as well as by businesses. Regulated by Pay.UK, Faster Payments are quick. Money is received within 2 hours of being sent (often near instantaneous).
- CHAPS (Clearing House Automated Payments). These are very secure, same day payments typically used by financial institutions to make wholesale financial payments and by large corporates to make corporate treasury payments. Operated by Bank of England for real-time, high-value payments they can be quite expensive.
- Direct Debit. These are automated, electronic payments where an organisation wishing to receive funds, collects amounts from the payers’ bank account. The collecting organisation – who must be sponsored by a bank – decide on the amount to be collected and ‘pull’ the money from the payers account after giving advance notice. Many businesses will have Direct Debits set-up to pay suppliers for goods and services but as it is the receiving organisation that initiate the collection, it isn’t suitable for all payments (e.g. salaries).
Business payments made via other methods such as cash and cheque are less common in today’s electronic world, while credit cards are often reserved for nominated staff members to use for low value transactions and expenses. Often therefore, the choice of payment method comes down to Faster Payments versus Bacs Direct Credit. Both have a place but when there is a choice, there are several reasons why making payments via Bacs Direct Credit makes sense.