What it means
Most everyday bank transfers in the UK are small and go through slower or lower-cost schemes. CHAPS is built for the opposite case, where the amount is large or the timing is fixed and the recipient must be certain the money has arrived.
It runs on business days, and payments sent before the cut-off are normally received the same day. The system works on a real-time gross settlement basis.
Each payment is settled individually and in full across accounts that banks hold at the Bank of England, rather than being netted against other payments at the end of the day. That removes the delay and the risk of waiting for a net balance to be calculated.
Because the payment is final and cannot normally be recalled once sent, CHAPS suits transactions where certainty matters. Buying a home, paying a large supplier invoice before a deadline, moving funds between group companies, and settling a securities purchase are typical uses.
There is no fixed upper limit set by the system, although individual banks may apply their own limits and security checks. The trade-off is cost.
Banks usually charge a noticeably higher fee for a CHAPS payment than for standard transfers, and charges vary by bank and by whether it is sent online or through a branch. Treasury teams therefore reserve it for payments where speed and certainty are worth the fee.
For a finance team, the practical points are the cut-off time, the need for accurate payee details, and the cost of sending money late. Missing the cut-off can push a payment to the next business day, which may mean extra interest, a failed completion or a late payment penalty.
Building the cut-off into the payment calendar avoids those problems.
In practice
Real-world examples.
Example
A family completes the purchase of a house and their solicitor sends the full purchase price by CHAPS on the completion morning. The seller's solicitor receives the money within hours and releases the keys the same day.
Example
A UK manufacturer needs to pay a supplier GBP 1,200,000 for raw materials before the supplier agrees to ship. The treasurer sends the payment by CHAPS after lunch, and the confirmation arrives before the supplier's cut-off.
Example
A group treasury team moves cash from a subsidiary account to the parent to meet a loan repayment due that afternoon. Using CHAPS, they know the funds will be available in time and the covenant is not breached.
Formula
Calculation
Cost of one day's delay = payment amount x annual interest rate x days delayed / 365
A company needs to pay GBP 500,000 into a deposit account to complete a property purchase. Suppose the funds would otherwise earn an annual rate of 4% (an assumed rate for illustration). The cost of a one-day delay = 500,000 x 0.04 x 1 / 365 = 20,000 / 365 = GBP 54.79. If the delay also caused a failed completion, the cost could far exceed that figure, which is why paying a higher CHAPS fee of, say, GBP 25 to GBP 35 is often a sensible decision.Case study
Seen in the real world.
Pennine Engineering is an illustrative, fictional company that agreed to buy a competitor's workshop for GBP 2,400,000 with completion set for a Friday. The finance manager initially scheduled a standard bank transfer, assuming it would arrive in time.
A colleague pointed out that the transfer might not arrive until the next working day, and the seller's solicitor had said that late funds would delay the keys and trigger a daily charge. The finance manager switched to CHAPS, sent the payment before the bank's published cut-off, and paid a fee of GBP 30.
In the illustrative outcome the completion went ahead on time. The small fee avoided what could have been several days of delay and a negotiation about compensation.
Watch out
Common mistakes.
- Assuming that a CHAPS payment can be sent at any time of day, when it must be submitted before the bank's cut-off on a business day.
- Entering the sort code or account number incorrectly and assuming the payment can simply be reversed, when a final payment usually cannot be recalled easily.
- Choosing CHAPS for routine small payments, when the higher fee is only justified by size, speed or certainty.
Questions
People also ask.
Is CHAPS only for payments in sterling?
Yes, CHAPS is a sterling system, so payments in other currencies would go through different international channels.
How is CHAPS different from Faster Payments?
Faster Payments is designed for lower-value payments and has set limits, whereas CHAPS is for large amounts and settles each payment individually in central bank money.
Can a CHAPS payment be cancelled?
Once it has been released to the system it is generally treated as final, so any recall depends on the recipient's agreement.
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