What is a CHAPS Payment?

We live in a world where everything is centralised within the browsers of our computer. We can simply open up our browser, head over to our banking account and send money to anyone we wish. This has significantly streamlined making payments.  

The progress we have made on the process of making payments has been great for businesses, as there is a significant simplification on sending and receiving payments. However, businesses may wish to transfer large amounts of money on specific dates (paying invoices etc). This is when things get a little more complex, and it isn’t as simple as paying back your friend who bought you a beer at the weekend.  

When making high-volume or high-value transfers through your bank, you will be using one of two main payment networks: CHAPS and BACS. But what actually is a CHAPS payment?  

What does CHAPS mean? 

CHAPS stands for ‘Clearing House Automated Payment System’, and it is a high-value bank-to-bank payment system which is used for an efficient transfer of money without settlement risk. CHAPS payments are guaranteed to transfer on the same day as long as payment instructions are received by the specific cut-off times specified by the bank. There are no limits to the amount of money which can be transferred via CHAPS either, which contrasts most conventional bank transfers which will trigger significant headaches if trying to send larger amounts. 

Pretty much all conventional banks will be able to offer CHAPS as an option - but it is always worth double checking whether your bank participates. The Bank of England has provided a comprehensive list of participating banks here. 

Read more: What is a telegraphic transfer?

What is the purpose of a CHAPS payment? 

Generally, CHAPS payments will be of a higher value than a conventional bank transfer. This means that they are over £10,000. They may also have some element of time sensitivity as well, and therefore the guaranteed same day settlement is required. For example, they can be a great option for individuals placing deposits on a house, or making a payment to a supplier who has a strict deadline on paying an invoice. 

CHAPS vs BACS payments - what’s the difference? 

The other main payment network is ‘BACS’ and essentially the difference between the two is going to be dictated by the service that you require. 

A CHAPS payment is for a high-value, time sensitive payment as discussed so far. It is for making payments that are needed on that same day. Conversely, a BACS payment is for a routine every day payment which is not strictly bound by time. This could be weekly wages to your staff, or smaller routine payments to suppliers.  

Is CHAPS faster than BACS? 

A BACS payment can take anywhere from two to three days to complete - therefore an impractical choice if payment is required immediately. Therefore, CHAPS payments are infinitely faster than BACS payments. A CHAPS payment often goes through, bank-to-bank, within a matter of hours. Generally the cut-off for same day delivery with a CHAPS payment is 3-5pm. 

So, if CHAPS is faster, why wouldn’t we always use CHAPS? Well, a BACS payment is significantly cheaper for money transfers. You can expect to pay anywhere between 5-50p per transaction. A CHAPS payment on the other hand is significantly more expensive due to the access and maintenance costs of your bank’s software and hardware required for the transfer. These transfers can cost anywhere between £25-35 per transfer, therefore they tend to be less regular types of trades, and of a higher value. 

Benefits of CHAPS 

The core benefits of CHAPS are that they offer a guaranteed same-day delivery, as long as you meet the cut-off criteria, and also that there is no limit to the amount of money which can be transferred. This means that CHAPS payments are the perfect high-value payment option for businesses and individuals. As a general statement, CHAPS payments are the best options for those wishing to make one-off large payments which are time sensitive. 

Downsides of CHAPS 

There are a few downsides to CHAPS payments which we have already partially discussed. Firstly, the obvious downside of those cut-off times. When running a business, things don’t often run smoothly, and sometimes there are delays. Getting a payment out before 3pm can sometimes be difficult as challenges get in the way. If the deadline isn’t met, then the payment will sit in limbo until the following day.  

Another downside of CHAPS is they are not rectifiable. Once the payment instruction has been sent, you are unlikely to be able to recall the funds. Therefore it is imperative that you do not make any mistakes in the payment instruction.  

As another downside, we’ve discussed the significant cost, especially when compared to a BACS payment. A CHAPS payment is significantly more expensive than other payment options, and will typically cost £25-35 per transfer. Therefore, it is only worthwhile using a CHAPS payment on transfers over a certain significant value (EG you wouldn’t transfer £100 and incur a £25 fee on it) 

How Does a CHAPS payment work? 

Making a CHAPS payment is relatively simple. You head to your bank with the payment details of your own account, and the payee’s account details, and the bank will be able to set up the CHAPS process for you there and then. It is also possible to make CHAPS payments online. 

A CHAPS payment system opens up at 6am each day, and the payment instructions have to be sent by 3pm (although specific cut-off is dependent on your bank, so make sure to check). As long as you have met the cut-off criteria, then the vast majority of CHAPS payments are made instantly, but in worse cases may take a few hours. Either way, the payment will be received the same day as long as you meet the cut-off.