A bank transfer is a payment made directly from one bank account to another. In the UK, there are three main interbank payment systems that process transfers: BACS, Faster Payments, and CHAPS. Each operates differently in terms of speed, cost, and transaction limits, and choosing the right one depends on the urgency and value of the payment.
The Three UK Payment Systems
BACS (Bankers’ Automated Clearing Services)
BACS is the UK’s oldest electronic payment system, processing both Direct Credit (outgoing payments) and Direct Debit (incoming collections). It operates on a three working day cycle and is the standard method for payroll, supplier payment runs, and pension payments.
BACS is ideal for planned, bulk payments where same-day settlement is not required.
Faster Payments Service (FPS)
Faster Payments was launched in 2008 to provide near-instant bank transfers. Most payments settle within seconds, though the scheme allows up to two hours. It operates 24/7/365, including bank holidays.
Faster Payments is the default method used when you make a payment through online banking or a mobile banking app.
CHAPS (Clearing House Automated Payment System)
CHAPS provides same-day, guaranteed settlement for high-value payments. It is operated by the Bank of England and is the only UK payment system where settlement is final and irrevocable on the same day. CHAPS is typically used for property purchases, large commercial transactions, and time-critical payments.
Side-by-Side Comparison
| Feature | BACS | Faster Payments | CHAPS |
|---|---|---|---|
| Speed | 3 working days | Seconds to 2 hours | Same day (by 5:00 pm) |
| Availability | Working days only | 24/7/365 | Working days only |
| Transaction limit | No limit | Varies by bank (up to £1,000,000) | No limit |
| Cost (business) | £0.04 - £0.50 per item | Usually free to £0.50 | £20 - £35 per payment |
| Cost (personal) | Usually free | Free | £20 - £35 per payment |
| Batch processing | Yes | No (individual) | No (individual) |
| Settlement | Net settlement on day 3 | Near-real-time | Real-time gross settlement |
| Irrevocable | Can be recalled before day 3 | Difficult to reverse | Final and irrevocable |
| Best for | Payroll, bulk supplier payments | Everyday transfers, urgent payments | Property, large one-off payments |
Choosing the Right Method
Use BACS When
- You are running payroll and paying multiple employees in a single batch
- You are paying multiple suppliers on the same date
- The payment is not time-sensitive and can wait three working days
- Cost matters — BACS is the cheapest option for bulk payments
Use Faster Payments When
- You need the money to arrive the same day or within hours
- You are making a one-off payment through online banking
- The amount is within your bank’s Faster Payments limit
- You are paying an invoice that is due today or overdue
- The recipient needs confirmation of funds before releasing goods
Use CHAPS When
- You are completing a property transaction (required by most conveyancers)
- The payment exceeds your bank’s Faster Payments limit
- You need guaranteed same-day settlement with legal finality
- The transaction is time-critical and failure to pay on time would have contractual consequences
How to Make a Bank Transfer
Regardless of the payment system, you need the same information to make a transfer:
| Detail | Purpose |
|---|---|
| Payee’s name | Must match the account holder’s name |
| Sort code | Identifies the recipient’s bank and branch |
| Account number | The 8-digit number for the recipient’s account |
| Payment reference | Helps the recipient identify the payment |
| Amount | The sum to transfer |
Most online banking platforms automatically route your payment through Faster Payments for individual transfers. To use BACS, you typically need to submit a payment file or use a bulk payment feature. CHAPS payments are usually initiated through your bank’s business banking platform or by calling the bank.
Confirmation of Payee
Since 2020, UK banks use a system called Confirmation of Payee (CoP) to check that the name you enter matches the name on the destination account. This helps prevent:
- Payments sent to the wrong account due to typos
- Authorised push payment (APP) fraud, where someone is tricked into sending money to a fraudster
If the name does not match, your bank will warn you before the payment is sent. You can still proceed, but the warning should prompt you to verify the details with the recipient.
International Bank Transfers
For payments outside the UK, the domestic systems (BACS, Faster Payments, CHAPS) do not apply. International transfers use:
- SWIFT — The global messaging network connecting banks worldwide
- IBAN — The international account number format used in most countries outside the UK
- SEPA — For euro payments within the Single Euro Payments Area (UK banks can still participate)
International transfers typically take 1-5 working days and involve exchange rate margins and transfer fees from both the sending and receiving banks.
Security and Fraud Prevention
Bank transfers are a common target for fraud. Businesses should:
- Verify new payment details independently before making the first transfer to a new supplier
- Use Confirmation of Payee and take warnings seriously
- Be cautious of email requests to change bank details — a common tactic in invoice redirection fraud
- Implement dual authorisation for high-value payments, requiring two people to approve the transfer
- Reconcile bank statements daily to spot unauthorised transactions quickly
Accounting Treatment
Outgoing Transfer
When you pay a supplier or employee by bank transfer:
Debit: Trade payables / Salary expense
Credit: Bank
Incoming Transfer
When you receive payment from a customer:
Debit: Bank
Credit: Trade receivables / Revenue
The accounting entry is the same regardless of which payment system is used. The difference lies in timing — BACS payments may not appear on the bank statement for three working days, requiring careful attention to bank reconciliation at month-end or year-end.