What is a CHAPS payment?

When companies or entities need to make payments to settle transactions or transfer funds to other parties, they have a range of options. CHAPS is a way to transfer money or pay parties with assurances that the payment will be received on the same day that it is sent.

What is a CHAPS payment?

The Clearing House Automated Payment System (CHAPS) is a same-day transfer system between banks. It is typically used for time-sensitive transfers of money between banks. CHAPS is commonly used for one-off payments of high value. The main reason for this is that banks charge substantial fees for facilitating these payments. The exact figure varies depending on the bank or payment service provider, but fees can be anywhere from £15 to over £30.

While CHAPS is commonly used for same-day payments, banking entities will often have a cut-off time for payments to be made on the same day, usually between 3pm and 4:30pm. Payments after this time will be received on the next working day.

CHAPS payments can only be made in pounds sterling within the UK.

Since November 2017, CHAPS payments have been managed by the Bank of England.

When are CHAPS payments most commonly used?

CHAPS payments are made by businesses for a number of reasons. These commonly include:

• Buying high-value items such as equipment, machinery or plant
• Purchasing vehicles
• Making payments to HMRC

They may also be used by individuals for high-value transactions such as putting down a deposit on a vehicle or property.

Pros and cons of CHAPS payments

CHAPS can be an effective payment method to pay a substantial sum quickly. Like any payment method, however, it has its inherent advantages and disadvantages.

CHAPS payment pros

• They are safe and secure

• They require very little effort from businesses and their staff

• They can be processed on the same day as long as payment is received before the banking deadline

CHAPS payment cons

• They are expensive

• Their cost makes them unsuitable for batch or bulk payments

• They cannot be used for international payments

Alternatives to CHAPS payments

Those wishing to transfer money to a recipient have several alternatives to CHAPS.

These include:

BACS

Bankers Automated Clearing Services (BACS) is one of the UK’s most popular bank transfer options. Direct debits, which are commonly used to pay recurring household bills, are a form of BACS payment.

While BACS is significantly cheaper than CHAPS with fees generally ranging between 5p and 50p, payments can take 2-3 days to process.

Faster payments

Faster payments (FPS) are made between banking entities and can be used by both businesses and individuals. FPS can be made online, in-branch or over the phone. As long as the recipient’s bank uses faster payments, the transfer of funds is practically instantaneous – although in some cases payments may take a few hours to clear.

SWIFT payments

SWIFT is a method for facilitating international payments. It is not a banking system per se. it simply sends payment orders between banks using its own set of codes. SWIFT payments typically take 1-4 working days and fees are between 3% and 5% of the transaction’s value.

Square Instant Transfers

If your business processes payments with Square, you can have faster access to your money with Square Instant Transfers. Initiate an instant transfer from the Square app, you can instantly send up to £3,500 per transfer 24 hours a day, 7 days a week. There is no limit to the number of instant transfers you can set up in a given day.

Learn more about how Square Instant Transfers works >

CHAPS payment FAQs

What is the difference between CHAPS and BACS?

CHAPS and BACS are both types of banking transfers. However, while BACS payments are cheaper, they may take 2-3 days to process. CHAPS payments, however, are usually processed within 24 hours.

How long do CHAPS payments take to clear?

CHAPS payments typically clear on the same day they are sent as long as the payment is sent before the bank’s deadline (usually between 3pm and 4:30pm).

When is it best to use CHAPS?

CHAPS is best suited to one-off large payments like tax payments or capital expenditures such as high-value equipment.