Bacs is an acronym for Banks Automated Clearing System and was originally a scheme set up by UK Banks to process financial transactions. The majority of Direct Debits and Direct Credits made in the United Kingdom are made using the Bacs system. Bacs payments take three working days to clear. On the first day they are entered into the system, on the second day, they are processed, and finally they are cleared on the third day, which is when they reach their destination account.



A Direct Debit is an instruction from a customer to their bank or building society authorising an organisation to collect financial amounts from their account. They are used to make secure, regular payments for things such as household bills. Over 5 billion Direct Debit payments are processed by Bacs a year and most adults in the UK have at least one Direct Debit set up on their bank account. Bacs Direct Credit is primarily used for paying wages and salaries. In 2007, over 90% of workers in the United Kingdom were paid using this method.

Electronic payments using Bacs software have become increasingly popular in recent years due to the convenience associated with them and the growing demand for telephone and internet banking. Payments and collections via Bacs reduce business costs greatly when compared with more traditional methods such as cash or cheques, this is mainly down to the reduction in administration time and costs involved in making and processing payments.

As well as getting a bank to set up a direct debit or credit for you, it is also possible to make payments through the Bacs system using special software designed for the purpose. In order to use the Bacs system, a company must hold an account with one of the major banks who will sponsor their application. The only way it is possible for businesses to make payments in this way is to use software from the list of Bacs Approved Solution Suppliers (BASS). Each bank will have their own recommended software supplier, although it is possible for a company to use an independent supplier if they wish.

A Bacs Approved Solution Supplier is a software developer and supplier who can provide software, support and consultancy services to Bacs customers to enable them to use the Bacs service. Each supplier has their products and services assessed by Bacs using a series of rigorous standards and criteria. It is important that companies only use a supplier that is fully approved by Bacs. Bacs approved software suppliers can be recognised by the Bacs approved software suppliers logo on their published materials. Only Approved suppliers are allowed to display this logo, and a full list of them can be found on the Bacs website. If a company is not listed on this website, then they have not been approved.

If a company wishes to make payments on behalf of other companies or people, it must become a become a Bacs Approved Bureau and purchase special Bureau software. The criteria needed to become a Bacs bureau are even more rigorous than for a normal application and include a security inspection that costs over 4,000 pounds. Some companies set themselves up as a bureau to charge other companies a commission for making payments on their behalf, this is a common practice in the recruitment industry where temporary agencies might outsource their payroll.

As well as standard Bacs software, there are Bacs Software packages available that integrate directly with accounting packages, the most common of these being Sage accounting software. This can be accomplished in two ways: the first most common way is to export a file from the accounting software which can then be read into the Bacs software. There is also a type of Bacs software, known as Direct Entry Bacs which not only extracts data directly from the Sage software, but makes postings back into the Sage legers after the payment has been submitted, saving a large amount of admin time.