As our highly digitized economy continues to evolve, cash flow and liquidity management are paramount to businesses. Modernizing payment processes away from manual processes—such as checks and extended terms—is crucial for businesses to control their cash position. How can real-time payments help?
It’s also crucial for consumers, who tend to believe their funds are sent and received in real-time, although some payment methods can take days to reach recipients and settle in their accounts. This can create uncertainty and a lack of clarity around cash management as bank account balances are not current. In this new era of instant gratification, businesses, and their consumers have rising expectations about how and when to sell and purchase goods, trade stocks, and monitor cash positions precisely in real-time.
Businesses using real-time payments (RTP) in their day-to-day operations will have better cash management. These businesses are getting paid and paying on time—no longer waiting days or weeks for their payments to process. Maintaining a steady cash flow puts their business in a stronger position for increased revenue, greater transparency, improved payments reconciliation, reduced unauthorized payments, reduced reliance on cards, and overall customer and supplier satisfaction.
Still, many business leaders don’t understand how real-time payments can transform their operations for the future—let alone what they are.
Real-Time Payments Defined
Real-time payments are initiated and settled faster than the average bank transaction—they are nearly instantaneous. Traditional payment methods can take several days for funds to reach a recipient’s account, and they won’t know about or see the payment until the bank has cleared it. When The Clearing House launched the RTP® network in 2017, businesses and consumers could make real-time payments 24/7/365 since RTP rails are always online and available to process transfers, including weekends and holidays.
The immediate nature of RTP transferring funds more cost-effectively than standard credit card transactions removes cash flow bottlenecks so people can see their money instantaneously, up to the second. Real-time payments are irrevocable push transactions, so only payers can initiate the payments—other parties can send a request for remittance but cannot begin the process. Once the payer sends the money, it can’t be reclaimed.
Every bank account owner is eligible to receive a real-time payment—a game changer when time is sometimes more valuable than money. Today, a digital experience without instant payment tends to be lackluster, fall short of customer expectations, and put a merchant at a disadvantage.
How RTP Can Transform Your Business
Real-time payments are bound to affect how we transact and conduct business —consumers, businesses, and financial institutions will all see the benefits of faster payment methods. Here are a few ways:
Improve liquidity: Merchants with fewer liquid assets don’t have to wait for checks to clear or payments to settle to cover their costs. Real-time payments make payroll on demand a practical reality so vendors and employees can get paid faster, which minimizes the risk of supply chain disruptions. Even gig workers and contractors can receive payments in full right after a job, increasing the fluidity and convenience of conducting business.
Reduces Risks: With other B2B payment methods, there are potential credit risks, chargebacks, payment failures, and limit restrictions. Many companies will even float payments to try and create an instant, real-time experience, but traditional cash flows prevent this workaround from being a seamless solution. Real-time payments help remove those headaches and intermediaries to provide more security and confidence during transactions.
Advanced Financial Management: RTP offers businesses more control of their payment processes, including accessing and moving funds immediately. Merchants can see their funds in seconds to plan and adapt their finances more efficiently. Business owners can meet short-term commitments, minimize borrowing, and optimize the use of surplus cash. Transparency develops both B2B and customer loyalty and relationships and also creates a better payment experience for customers.
The pandemic caused a severe disruption within the supply chain, creating a domino effect throughout the B2B relationship. Real-time payments are gradually staking their claim as a financial solution, providing new opportunities for merchants and customers seeking secure, user-friendly online payment options.
However, the rapid adoption of digital technologies, especially in the financial industry, is reshaping economies like never before. With RTP’s ability to move money quickly, so both payer and payee know precisely when the transaction occurred, more businesses are well-positioned to resemble the “pay now” experience in the B2C market. Innovative technology-backed processes, like real-time payments, are quickly becoming the business baseline.