Launched in July 2023, the Federal Reserve's FedNow® Service is designed to make payments faster and more convenient for consumers and businesses. For accounts receivable teams, FedNow has the potential to significantly streamline their workflow and improve their efficiency.
What is FedNow?
FedNow is a 24/7/365 real-time gross settlement (RTGS) service that enables financial institutions to send and receive payments instantly. This means that funds will be available to the recipient immediately, regardless of the time or day of the week.
Designed to be interoperable with certain other payment/messaging systems, such as the ACH network and SWIFT, payments made through FedNow can be sent to and received from financial institutions around the world. FedNow will not, however, directly work with CHIPS or TARGET2, as it is designed to be complementary to these systems.
What are the benefits of FedNow for accounts receivable professionals?
There are a number of benefits that FedNow can offer accounts receivable professionals, including:
- Faster payments: FedNow allows payments to be settled instantly, which can significantly reduce the time it takes for accounts receivable professionals to collect payments.
- Improved cash flow: Faster payments can help improve cash flow, which can give businesses more flexibility and make it easier to manage their finances.
- Reduced risk: FedNow can help reduce the risk of fraud and errors, as payments are settled instantly and there is no need for intermediaries.
- Streamlined workflow: FedNow can help streamline the accounts receivable workflow, as there is no need to wait for payments to clear. This can free up time for accounts receivable professionals to focus on other tasks.
How can accounts receivable professionals prepare for FedNow?
Accounts receivable professionals can start preparing for FedNow by:
- Educating themselves: There are a number of resources available to help accounts receivable professionals learn more about FedNow, including the Federal Reserve's FedNow website and the FedNow Explorer.
- Talking to their financial institution(s): Accounts receivable professionals should talk to their financial institution(s) about their plans to support FedNow. This helps ensure they are ready to start using FedNow when it becomes available.
- Testing FedNow: Some financial institutions are already offering FedNow in a pilot program. Accounts receivable professionals who are interested in using FedNow should consider testing it out in the pilot program.
FedNow has the potential to significantly improve the efficiency of accounts receivable workflows. Accounts receivable professionals who are prepared for FedNow can reap the benefits of faster payments, improved cash flow, reduced risk, and streamlined workflows.
The Federal Reserve's FedNow website: https://www.frbservices.org/financial-services/fednow
The FedNow Explorer: https://fednowexplorer.org/
The Federal Reserve's FedNow FAQ: https://www.federalreserve.gov/paymentsystems/fednow_faq.htm