When it comes to making Supplier Payments,  businesses need to decide which payment method to use. Often the choice is Bacs Direct Credit vs Faster Payments.

Making supplier payments in an efficient, timely and secure way can keep operations running smoothly; ensure the organisation does not lose access to key goods and services and can foster good relationships with suppliers. So, which payment approach is best? Bacs Direct Credit vs Faster Payments? Both are electronic payment methods and are regulated by Pay.UK. but they offer different advantages. This makes it essential to understand their differences and to choose the right one for your organisation’s financial needs. 

Bacs Direct Credit

Bacs Direct Credit is a simple, secure and reliable electronic payment method that has been used for years. It is a way that organisations can ‘push’ payments to others and can be used for regular and/or occasional payments. Money is paid from an organisation (known as a service user), who is sponsored by a bank, to a beneficiaries bank / building society account.

There were 1.9 billion Bacs Direct Credit payments in the UK in 2022. They are typically used for bulk payments e.g., salaries, supplier invoices, benefits and refunds. The scheme is one of two, along with Direct Debit, that is operated by Bacs, part of Pay.UK. Here are some of the advantages of using Bacs Direct Credit:

Scheduled Payments: 

Bacs Direct Credit is ideal for businesses with recurring payments or regular bills. It allows businesses to set up scheduled payments to automate regular transactions. This ensures that bills are paid on time without manual intervention.

Cost-Efficiency: 

Direct Credit is often less expensive than other payment methods, especially for bulk transactions. Using this method therefore can save your business money, making it a cost-effective choice. The actual rates paid depend on the deals agreed with your bank but published bank costs for Bacs Direct Credits are often “pence per transaction” rather than Faster Payments, that are typically “pounds per transaction.”

Security:

Transactions made through Bacs Direct Credit are secure. This ensures the safety of your funds and reduces the risk of fraud or errors during the payment process.

Simplicity:

The process of setting up Bacs Direct Credit payments is straightforward. Once established, it can be easily managed and maintained, allowing you to focus on other aspects of your business.

Convenient for Recipients:

Suppliers that receive payments through Bacs Direct Credit appreciate the predictability and reliability of funds arriving directly in their accounts.

Feedback on failures:

Unlike Faster Payments, if a transaction cannot be paid i.e., because  bank details have been entered incorrectly, Bacs will generate advice – in the form of a Bacs Report to alert you to this fact. This means you can take action to gain the correct bank account details and proceed.

Error recall:

Hopefully errors will not occur but if payments are made incorrectly (e.g. the wrong amount or to the wrong recipient), then there is a chance with Bacs Direct Credit that these can be recalled and corrected. This can be undertaken either by requesting a File Extraction, Payment Withdrawal or possibly, a File Reversal. Faster payments once initiated cannot be cancelled.

Faster Payments

Faster Payments are a widely used electronic payment method. In 2022 there were 3.4 billion Faster Payment transactions made with a value of £2.6 trillion. Many of these were undertaken by consumers e.g. via online or banking apps, though businesses also make lots of transactions using Faster Payments. Operated by Pay.UK, the defining characteristic of these payments is the speed with which they can be made. Here’s why Faster Payments might be the right choice for your businesses’ financial needs:

Speed:

As the name suggests, Faster Payments are quick. They offer near-instantaneous transactions, which can be vital when you need to settle bills urgently .

24/7 Availability:

 Unlike Bacs Direct Credit, Faster Payments operate around the clock, seven days a week, including weekends and holidays. This means you’re not restricted to making payments in banking hours.

Improved Supplier Relations:

With Faster Payments, you can ensure that your suppliers receive their money promptly, enhancing their trust and confidence in your business.

Flexibility:

Faster Payments provide the flexibility to make one-off payments or recurring transactions. You can adapt your payment strategy to suit the specific needs of your business and suppliers.

Choosing the Right Payment Method – Bacs Direct Credits vs Faster Payments

The choice – Bacs Direct Credit vs Faster Payments – largely depends on your business’s needs and preferences. Here are some factors to consider:

  • Transaction Speed. If speed is of the essence, Faster Payments might be the way to go. Bacs Direct Credits are subject to the Bacs cycle. This is a 3-day timeline for payments to be made.
    – On Day 1, the organisation sends the transactions to Bacs; 
    – on day 2 Bacs process the transactions
    – on Day 3 the money is credited to the Suppliers account.
    This timeline is fine if the date and amount is known in advance – for example with salary payments or supplier invoices with 30 day payment terms. If, however, immediate payment terms apply or an invoice has been forgotten and needs to be paid quickly, then a Faster Payment might be best. Faster payments are subject to a 2-hour timeline for payment, though many can appear almost instantaneous. They are therefore best for time-sensitive payments.
  • Cost Considerations. Bacs Direct Credit is often a more cost-effective option, particularly for bulk transactions.
  • Supplier Requirements. Consider your suppliers’ preferred payment methods. Some may have specific preferences, and accommodating these can strengthen your partnerships.
  • Sponsorship. Not every organisation can make Bacs Direct Credit transactions. It is a sponsored service, and your bank needs to approve you to make payments via this method. If approved, the organisation is issued with a Service User Number that helps identify them and this must be used when making transactions. In contrast, with Faster Payments, almost anyone in the UK with a UK bank account can make payments via this method.
  • Automation Needs. If you want to automate payments and reduce manual workload, Bacs Direct Credit is better suited for scheduled and recurring transactions.
  • Urgency vs. Routine. You can also use a combination of both methods. For routine payments, Bacs Direct Credit might be best. They can be planned in advance and are cheaper, while Faster Payments can be reserved for urgent or ad-hoc transactions.
  • Bulk vs induvial payments. If you have a lot of payments to make, then Bacs Direct Credit works well. You can upload a file into Bacs approved software or send a file to a Bacs approved bureau who can submit them to Bacs on your behalf. Faster payments are often undertaken by entering details individually for each payment, which can be time consuming and increase the likelihood of errors arising.

Bacs Direct Credit Training

Bacs Direct Credit training can help businesses streamline their financial operations – for example by increasing automation and reducing the possibility of manual errors. Our training:

  • provides an insight into Pay.UK, Bacs and the UK payments infrastructure,
  • covers different payment methods and their benefits and considerations
  • highlights all the relevant Bacs Scheme Rules,
  • examines the Bacs feedback reports,
  • explains how to avoid errors occurring in payments and crucially, what actions to take if you believe an error has been made.

Spending an Organisations income is a big responsibility. Give your team the confidence and skills to get it right every time. 

Still have questions?

Direct Credit vs Faster Payments – both are powerful tools for managing financial transactions. The choice between them comes down to your business’ financial needs, priorities and the specific circumstances of each transaction. Whether you prioritize speed, cost-efficiency, automation, or supplier preferences, making an informed choice will help you maintain healthy supplier relationships and streamline your financial operations.

Still have questions? We are here to help. Contact us today.

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