Every business has costs to settle, and getting those payments right is often critical. Understanding when to use a CHAPS transfer, BACS transfer or other payment services will help make settling supplier fees more efficient, cost-effective and accurate.
“Choosing the right payment method is always about balancing a range of different priorities,” explains Andy Smith, group finance director with Abbeygate Accounting. “The factors you’ll consider are security, transaction fees, administrative time and speed.”
Sometimes the priority for payment is speed and low cost, while in other circumstances, a business might prioritise security at the expense of speed or cost, Smith adds. “If you’re making a large payment for property or automotive services to a large organisation after the asset has been delivered, you might well prioritise security over speed,” he says.
What is a CHAPS payment and what does CHAPS stand for?
CHAPS stands for clearing house automated payment system. It is a real-time payment system used in the UK for sterling payments.
Payments made using CHAPS are non-reversible, meaning that once the money has arrived in the payee’s account, it cannot be reversed or reclaimed. For this reason, it is seen as a more secure method of sending high-value payments between banks.
Absolute Media is a digital advertising agency that has been using CHAPS for high-value payments since 2018. “Using CHAPS means we can ensure payments are sent quickly and securely, which reduces the risk of fraud and other financial losses,” says Daisy Taylor, the company’s financial director. “Additionally, a CHAPS transfer reduces the amount of time taken to process payments by our staff.”
How does CHAPS work?
To make a CHAPS payment, you just need to log into your online banking platform and select the CHAPS payment option. You will need to provide the account details of the payee, and the bank will arrange the transfer for you.
Depending on your bank, there will be a specific time of day that you need to make CHAPS payments by, to ensure the payment is processed the same day. Guaranteed same-day transfer is important to companies like Absolute Media because suppliers may set payment deadlines or request same-day payment in certain instances. “We don’t use CHAPS for day-to-day purchases, and we arrange payments to be made in advance, but CHAPS has helped us make same-day payments and take advantage of deals on a purchase as a result,” says Taylor.
How long does a CHAPS payment take?
The first thing to understand about CHAPS is that it is relatively fast, providing same-day settlement, with funds arriving within a few hours. However, unlike Faster Pay, CHAPS is not necessarily an instant cashless payment.
“Assuming you check your bank’s deadline, and request the transfer before the cut-off time, a CHAPS payment will usually be made within a few hours, but it is guaranteed to be done the same day,” says Smith.
What is the difference between CHAPS, BACS, Faster Payments and Charge Cards?
CHAPS, BACS and Faster Payments all involve a bank-to-bank transfer, but they have important differences.
- BACS is a bank-to-bank transfer that takes up to 3 working days to process. It’s possible to use BACS for payments of up to £20 million (although your bank may impose a lower limit) and you will pay between 5p and 50p per transaction.
- Faster Pay is a near real-time bank-to-bank transfer for transactions of up to £1,000,000 that is available on weekends, evenings and bank holidays. Faster Payments can be relatively expensive, with some banks charging a fee of £2.50 per transaction.
- Finally, CHAPS payments are same-day payments for transactions of £10,000 or higher and can cost around £20 per transaction.
“Businesses will tend to use BACS for high-frequency payments, such as payroll, because it’s cost-effective and there is often the ability to export from accounting or payroll platforms into online banking platforms, allowing payment details to be automatically uploaded, which reduces the risk of human error,” says Smith. “In contrast, Faster Pay might be used for time-sensitive payments, while CHAPS is for high-value, high-risk transactions.”
As an alternative to bank transfers, charge cards like the American Express® Business Gold Card offer the ability to pay suppliers instantly while also accruing Membership Rewards® for every pound you spend¹. The Business Gold Card also offers more flexibility for your cash flow than a bank transfer with its extended payment terms of up to 54 days².
Advantages of CHAPS transfers
As a digital advertising agency, Absolute Media relies on specific software packages to run services for its clients. The company pays license fees for these packages upfront each year, using CHAPS transfer to make these five-figure payments securely.
“We started using CHAPS around five years ago to make high-value payments for things like software licenses,” says Daisy Taylor, the company’s finance director. “We benefit from faster processing times compared to BACS, increased security and improved traceability when tracking payments. In addition, CHAPS helps us reduce the cost of manual payment processing.”
Disadvantages of CHAPS transfers
The first downside of CHAPS is that the transaction fees are comparatively high, making it unsuitable for regular transactions, says Smith. “Not only are you paying a higher fee for each payment, but it’s also not real-time in the way a Faster Payment would be, so there needs to be a compelling reason to use CHAPS,” he says.
CHAPS transfers aren’t accepted or available to perform in certain countries, meaning that businesses could find themselves unable to make or receive international payments using CHAPS.
Absolute Media has a range of payment methods that provide alternatives to CHAPS transfer, in some circumstances. “CHAPS payments aren’t always suitable because of the high cost, or they are not available in specific countries and regions,” says Taylor. “We use bank transfers and credit cards for smaller payments and for larger scale payments we look at bank transfers and e-wallets. It often depends on the needs and preferences of our suppliers.”
1. Membership Rewards points are earned on every full £1 spent and charged, per transaction. Terms and conditions apply.
2. The maximum payment period on purchases is 54 calendar days and is obtained only if you spend on the first day of the new statement period and repay the balance in full on the due date. If you'd prefer a Card with no annual fee, rewards or other features, an alternative option is available – the Business Basic Card.
