Carrie Reyna
THE INTRODUCTION OF REAL-TIME payments will assist organizations in closing some current gaps. Present electronic payments with strict cutoff times for processing and uncertainty over the exact timing of payment receipt does not meet today’s business needs. This gap in electronic payment offerings has resulted in a continued reliance on physical cash and checks, which are hard to control and have safety issues. Real-time payments let banks and customers process electronic payments at any time, without holiday and weekend blackout periods. Because payments clear within seconds, businesses do not have to guess when the receiving organization will have access to the funds. Here are some situations in which real-time payments could add value.
EMERGENCY PAYMENTS
CUSTOMER HOLDS
Customers may at times exceed their credit limit or terms, resulting in the inability to place additional orders. This issue is especially common with new clients and those expanding their operations quickly, not just customers experiencing financial difficulties. Failure to resolve hold issues in a timely way can have a material impact on clients and future sales. Customers expect their valued business partners will work with them while they establish and grow their businesses. As such, clients that can make real-time payments will expect their vendors to have similar capabilities. Customers may be unwilling to tolerate delays in the release of their orders because of a credit-limit hold due to a vendor’s inability to receive real-time payments. Even worse, clients might perceive the company as not up-to-date enough to handle their needs. Having the right payment options can have a dramatic impact on the overall customer experience.
PAYROLL
Employees are a company’s most valued resource. The public often bases its opinion of organizations on the actions of their workforce. As such, businesses want to make sure workers receive their wages in an accurate and timely fashion. Despite best efforts, compensation mistakes occur. When discrepancies happen, companies attempt to resolve them as quickly as possible. However, traditional payment methods may result in delays of hours or days. One source of delays is that most payroll groups only gather Automated Clearing House (ACH) routing numbers. Although some accounts have the same routing number for both ACH transfers and wire transfers, not all do. As a result, initiating a wire when the same-day ACH deadline has passed usually requires the employee to request the wire routing number from the company’s bank. Real-time payments use the same routing numbers as ACH transfers, making the gathering of a separate routing number unnecessary.
Even when payroll processing is accurate, workers may need to receive payments outside of standard payroll processing times in certain circumstances. For instance, California law requires companies to immediately pay an employee all funds owed in the event of involuntary separation. This requirement is not burdensome in planned terminations. Unexpected circumstances resulting in the need to terminate an employee immediately, however, may result in noncompliance with the law. Locations without the means to cut a check or withdraw cash to handle these situations are especially at risk of violations.
ACCOUNTS PAYABLE EXCEPTION ITEMS
As businesses centralize more payment activities in shared service centers, operating centers often lose their ability to initiate payments. Shared service centers are capable of handling most accounts payable scenarios. However, a certain portion of vendor payments will always need to be made on the spot. From buying fresh fish on docks to paying for repairs, companies may need to complete transactions before taking possession of perishable goods or for the performance of time-critical services. These types of accounts payable exception items traditionally have been initiated locally using petty cash or checks outside the shared services process. Real-time payments provide an alternative that would allow shared services to continue to manage the payments needed locally in a centralized location. This payment method removes the need for the operating center to handle physical cash or checks. Long-term, this method tightens controls while meeting business needs.
BUSINESS TRAVEL
Employees at all levels may travel on company business to various parts of the world. Frequent businesses travelers often have company issued travel and entertainment (T&E) cards at their disposal to make business-related travel purchases. These cards allow the company to capture rebates and extend payables. Employees benefit by freeing up their personal line of credit. T&E cards also provide control mechanisms that prevent workers from making purchases outside the company’s travel policy.
Usually, T&E cards function well and meet the needs of the traveler and the company. However, an employee sometimes encounters situations in which the T&E card is inadequate for any number of reasons. The card type may not be widely accepted at the destination. The traveler may need to make a necessary purchase in an area where only cash is an option. If the company knows of potential problems in advance, it can plan for these issues and provide the traveler with alternative means of making payment. When unexpected difficulties occur, the best option may be to send funds electronically to the traveler’s bank account. In these situations, standard ACH and wire transfers may be inadequate, especially if the issue takes place after cutoff times, on weekends, or during bank holidays. A real-time payment would be optimal under these circumstances.
DISASTER RELIEF
Over the last year, the U.S. endured hurricanes, flooding, fires, and volcanic eruptions. Companies have seen their workers affected by these events and wanted to assist where possible for the displaced and grieving. However, providing funds to employees and their families when in an emergency can be tricky. Even companies that think ahead and have cash on hand to distribute may not be successful if roads are impassible or the location is in a mandatory evacuation zone. Banks within walking distance of stranded workers are not always operational. Sometimes the safest course of action is for employees to stay where they are and pay for emergency supplies using debit cards tied to their bank accounts. In these cases, companies need a real-time solution that allows for funds to be deposited directly into workers’ bank accounts.
ELIMINATION OF RETURNS
Financial institutions are responsible for verifying fund availability before processing real-time payments from a customer’s accounts. As a result, the risk of returns shifts from the receiver to the sender’s financial institution. This shift benefits both the receiver and sender. The receiver decreases bank fees associated with return and reprocessing fees. Additionally, most companies do not have automated return processing for their enterprise resource planning systems. As such, returns usually have to be logged to customer accounts manually. Advantages to the sender include fewer overdraft fees from its financial institution and return fees charged by its vendors.
CUSTOMER ADOPTION
Businesses experience cost and efficiency gains when they successfully convert customers to electronic payment options, especially when they initiate the transaction. However, customers balk at signing up for these payment methods. Customers often cite feeling a lack of control on the exact timing of their payments. Also, to initiate the transactions manually, customers must typically log in to a vendor web portal to schedule the payment. The number of web portals with associated user IDs and passwords can become quite large if the client does business with a broad range of vendors. Companies are becoming more efficient at the expense of their customers.
With real-time payments, customers can initiate or approve payment requests in their chosen bank’s website. Clients that the funds will leave their accounts within a few seconds. Also, customers can avoid overdraft fees. Banks will not allow customers to release payments that exceed their available balance and associated credit lines. The ability to eliminate overdraft fees is a major advantage over all other traditional payment methods. Although there will be a learning curve as customers become more educated about real-time payments, the time spent will be well worth the effort.
CONCLUSION
Because of emergency payments, the elimination of returns, and the likelihood of higher levels of customer adoption, real-time payments could fill gaps in the existing payment landscape. Financial institutions can expect that businesses will begin communicating the names of the banks that are capable of real-time payments processing to their customers, vendors, and employees. Those institutions with real-time payment capabilities will be in higher demand as the public learns more about this option.
