4 reasons AR and AP teams can’t ignore instant payments

Blog | May 31, 2023

Reading time: 3 min
Consumers have embraced faster payments, but businesses are lagging. Why should you care? Faster and instant payments knock out pain points for billers and payers.
4 reasons AR and AP teams can’t ignore instant payments masthead image

Sending a selfie anywhere in the world takes a nanosecond. Ditto for ordering an audiobook on Amazon or watching a movie on Netflix.

And while Americans routinely pay one another back for small expenses with Venmo or Zelle, instant payments are not the norm for most U.S. companies.

One reason instant payments have yet to transform how customers pay businesses—and how businesses pay one another—is the relatively small number of adoptees out there.

“The problem with real-time payments is that there has been limited adoption in the B2B space,” says Nathan Baker, Director of Product Marketing for Billtrust. “Wait a few months, though, and instant payments will be hard to miss.”

FedNow: A game changing payments rail

The Federal Reserve’s new instant payment infrastructure, FedNow, will let businesses and individuals receive instant payments in real time, 24/7, with no holidays or days off.

If that’s not enticing enough, it will also allow financial institutions to finally have a choice about which instant payment provider to use. (For the past several years, The Clearing House’s RTP network has been the only game in town.)

The two networks have many striking similarities. Both run on the ISO 20022 messaging standard, and both allow broader payment messages. That means invoice and remittance data—as well as other useful information—can accompany a payment to its destination. (That healthy cash flow lifeline is also accomplished through our Cash Application solution, by the way.)

The opportunity for far greater uptake in instant payments for business is enormous, as seen by how significantly the U.S. is trailing Europe.

According to a 2022 survey from BNY Mellon and Aite-Novarica, 46% of North American corporations are using instant payments, considerably less than the 67% of European corporations doing the same.

FedNow a game changing payments rail - smartphone screens showing instant payments sent and received

4 reasons AR and AP teams need to pay attention to instant payments

The Aite-Novarica/BNY Mellon survey found that of businesses in North America not yet using instant payments, 68% have some level of interest in giving this transaction method a spin in the next 12 to 24 months. Here’s why every AR and AP department in the U.S. today should use instant payments:

1. You can send and receive cash in a flash with instant payments

The single most compelling argument for AR departments to opt for instant payments is this: They let your company receive and collect interest on cash immediately, an increasingly appealing benefit in our current inflationary environment.

In addition, instant payments promise to reduce or eliminate the need for expensive commercial loans for businesses that are in the habit of borrowing.

For AP departments, on the other hand, the argument is subtler. The beauty here is that instant payments can be precisely timed so the business manages cash flow better, meeting whatever priorities it sets for itself.

Another important point is that without instant payments, DSO fluctuates wildly.

Our data shows that for vendors paying by check, DSO is running at 90-plus days, but when vendors pay by ACH or credit card, the days until payment decrease to 45 and 21, respectively.

With instant payments, DSO can go to zero, or (on the AP side) it can be any number of days a business feels it can get away with.

 4 reasons AR and AP teams can’t ignore instant payments - send and receive cash in a flash - two smartphone screens showing the sending and receiving of a payment

2. Reconciling instant payments is easier and richer in data

Instant payments contribute to the streamlining of traditional AP and AR processes, but that’s only the beginning.

With more accurate and comprehensive data populating ERP (enterprise resource planning) systems, businesses gain clearer insights into sales and other trends that shape strategy.

3. Credit cards can be an expensive addiction that instant payments avoid

Businesses using credit cards are painfully aware how processing fees eat into profits. For merchants using Visa, Mastercard, Discover, or American Express, processing fees run anywhere from 1.3% to 4% of the value of each transaction.

With instant payments, those hefty fees shrink considerably. At FedNow, for instance, funds will soon be transferred for less than five cents a pop.

credit cards can be an expensive addiction - showing credit cards and a smartphone with a credit card on the screen

4. Speedy instant payments can win over customers and employees

Say you’re an insurance company competing against near identical rivals. The ability to immediately pay policyholders who face a financial shortfall after a disaster could make you a hero.

Or imagine how instant payments might function as an employee retention tool. Paying workers at the end of a shift rather than asking them to wait for biweekly payroll might prove a painless perk that reduces turnover.