Project Description

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“When do you need it?”

That’s the question treasury management now asks, thanks to the menu of faster payment options currently available. Businesses and consumers have more choices than ever before, with speeds ranging from a few hours to literally in the blink of an eye.

“Now” is the new competitive advantage. With digital disruptors like Door Dash (food), Amazon Prime (e-commerce), and Netflix (entertainment) breaking boundaries for speed, wait times are shrinking and expectations rising. “Immediate” is becoming the new normal for goods and services of all types.

Faster payments provide more opportunity to manage your business with precision and agility. These swift electronic payment methods can help you to:

  • Manage working capital and liquidity
  • Accelerate cash flow
  • Boost efficiency
  • Improve the payment experience for your customers, suppliers, and employees

Available methods include Same Day ACH, Push to Card, Zelle®, and real time payments through the RTP® network.

Use payment timeframes to your advantage

How you decide the appropriate payment method depends on several factors, including payee type, transaction amount, and information required to initiate the payment.

One of the most important criteria is the timing. With faster payments, the window between payment authorization and funds availability for the recipient shrinks dramatically.

Here are the basics:

Payment type Speed Funds availability
Same Day ACH Hours By 5 p.m. local time
Push to Card Minutes 24 hours a day, 7 days
Zelle Minutes 24 hours a day, 7 days
RTP payments Seconds 24 hours a day, 7 days

 

Making smart choices about payment timing will impact your brand reputation and customer experience, as well as how you manage liquidity and working capital. For example, many organizations rely on “float” to enhance their working capital. Paper checks and postal delivery can add two or more days to a single payment.

With accelerated electronic options that make funds available in hours, minutes, or seconds, “float” ceases to exist. The trade-off, however, is more control for treasury management. Faster payments allow accounts payable to execute “just-in-time” payments the day before (or even same-day) as an invoice due date. That means that instead of making working capital decisions based on estimates of when a check will clear, finance can act with precision, knowing with certainty when funds availability will occur for the recipient.

The same certainty occurs as a recipient of a faster payment. An RTP payment notification, for example, will arrive simultaneously with the availability of funds in your account; there’s no delay between remittance advice and the actual deposit. This helps businesses accelerate cash flow and optimize liquidity.

A final working capital opportunity exists with inter-company funds transfers. Businesses can now leverage RTP transactions to move money between corporate accounts. With 24 hour availability, the RTP network provides more flexibility and speed than with wire transfers, extending timeframes beyond FedWire deadlines.

Best practices to maximize faster payments

To take advantage of these opportunities, consider these best practices:

  • Develop guidelines. Rather than pay every transaction “faster” or leave the choice to individual business leaders, launch your faster payments initiative with company-wide guidelines that make clear who, when, and why you’ll pay faster.
     
    First, determine the most likely scenarios for use, such as emergency payroll distributions, customer refunds, or just-in-time inventory payment to suppliers. Then, specify the preferred method, as well as any internal approvals required.
     
    Lastly, identify how and where to store any sensitive customer account information that may be required to initiate payment, such as bank account numbers or email addresses. Be mindful of transaction limits and the irrevocability of some methods.
  • Evaluate your technology. Next, review your technology and system connections to your bank, merchant services provider, or other payment processor. Typically, executing faster payments requires a “live” or near real-time link, through an API or other connection. This is a switch from the once-a-day “batch” file transfers that are common with traditional payment methods.
  • Set staffing expectations. The 24 x 7 x 365 funds availability of the Zelle, Push to Card, and RTP networks brings with it new expectations. For example, if a B2B customer can pay you at 10 p.m. on a Saturday night, will they also expect their account settings to reflect payment over the weekend?
     
    In this new world, the funds transfer may occur before accounts receivable staff actually post the payment. Clear communication to customers, suppliers, and your customer service staff will help prevent issues as you transition to a faster payments environment.
  • Make a plan for your cash. Lastly, to achieve the maximum benefit from faster payments, be strategic about optimizing your idle cash. Many companies use excess working capital to pay down debt, fund strategic initiatives, or invest in higher-yield vehicles.
     
    It’s also a good time to revisit your payables procedures. With more options, you gain more control payment of timing. Faster payments can help you capture more early payment discounts and make time-sensitive supplier payments.

Faster payments bring innovation, speed, and a new way of doing business. With more than $1.86 billion in faster payment transactions projected for 2020, an opportunity exists for organizations of all sizes and industries.1

For more information, contact your Wells Fargo representative or fill out the Contact Us form on this site.

1Mercator Advisory Group, Inc., “Faster Payments: U.S. Forecast, 2017–2021,” February 2018

RTP® is a registered service mark of The Clearing House Payments Company L.L.C.