Bacs Direct Debit

Introduction to Bacs Direct Debit

The concept of a direct debit originated in the UK in the 1960s and today Bacs Direct Debit is by far the most common way to pay on a recurring basis in the UK.

Bacs stands for Bankers' Automated Clearing System, referring to the network of banks and building societies that participate in the Bacs payments schemes. To learn more about Bacs Direct Debit and other UK payment schemes, see our deep-dive on UK bank payments.

• Year introduced: 1968
• ‍Operated by: Bacs (now part of Pay.UK)
• Maximum amount: £250,000 per payment (may vary by bank)
• ‍Availability: Monday to Friday between 07.00 and 22.30
• ‍Settlement: Up to three business days
• ‍Fee per payment: £0.05-0.50

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How Bacs Direct Debit works

A Direct Debit is an instruction from a customer to their bank that authorizes an organization to collect payments directly from the customers' bank account. This instruction takes the form of a Direct Debit mandate, which provides advance notice of the payment amounts and dates and can be completed via a paper form or online.

Bacs Direct Debit is typically used for things like regular bill payments and subscriptions but can also be used for invoices and ad hoc, one-off payments. Though the Bacs processing cycle of three business days makes it unsuitable for payments requiring same-day settlement, as in most retail and ecommerce use cases.

If the amount, date, or frequency of a Direct Debit are to ever change, the organization usually has to notify the customer at least 10 business days in advance. And if a payment is made erroneously, the customer is entitled to a full and immediate refund under the Direct Debit Guarantee.

Customers can also cancel a Direct Debit any time, typically by contacting their bank or building society.

Processing cycle

• Day 1: Payment files are transmitted to Bacs between 07.00 and 22.30
• Day 2: The files are delivered to the recipient's bank for processing
• Day 3: The funds are credited to the recipients' accounts and debited from the payer's account

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Benefits and drawbacks of Bacs Direct Debit

Bacs Direct Debit is available to any business with a UK bank account and provides a low-maintenance and long-lasting recurring payment mandate. It is a relatively low-cost way to collect recurring payments at scale.

Due to the three-day settlement period, Bacs Direct Debit is not suitable for immediate or same-day payments. Additionally, if the payer’s bank account does not have sufficient funds, the sending bank may refuse to pay the direct debit.