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Best Practices

B2B Instant Payments: Definition and Basics

FinLync | September 9, 2022

What are Instant Payments?

Instant Payments, Faster Payments, or Real-Time Payments are all synonymous and represent new forms of payments that allow near instant settlement using new Real-Time payment networks (RTP). Faster than a wire, inexpensive like an ACH, instant payments are the best of both worlds, bringing a new level of not only faster reconciliation, but also leading to better cash flow management.

That’s a level of agility we’re all striving for, not only to improve cash flow, but to enhance our company’s overall liquidity management.

How do Instant Payments work?

The most effective Instant Payment systems offer 24/7, account-to-account, interbank electronic funds transfer, without a third-party intermediary, that is a secure transaction posting with immediate notification features.

This instant, 24/7, interbank electronic fund transfer service can be initiated through a host of channels: smart phones, tablets, digital wallets, and the web. This results in a real-time payment request that is initiated which enables an interbank account-to-account payment fund transfer and secure transaction posting with immediate notifications.

Learn how to streamline and centralize  B2B instant payments here

How do Instant Payments benefit organizations?

Instant Payments free your company from the limitations inherent in legacy technology, driving efficiencies, minimizing and even eliminating costly, manual payment processes, all while immediately delivering financial information that’s instantly actionable.

Additional benefits include:

  • Secure, fast and inexpensive method of payment.
  • Immediate confirmation within seconds of fund receipt, no guessing required.
  • Suppliers receive funds instantly, resulting in receipt of goods much sooner than with traditional channels. You can even provide confirmation that they received funds as proof of receipt.
  • Payments without accounts. Many real-time payments allow payments to be made using phone numbers and emails instead of sensitive banking information.

Are there limitations?

  • Does the receiver’s bank participate in the RTP network?
    • With Real-Time payments, you can confirm, within seconds,  whether a bank participates in the Real-Time payment network, knowing exactly which vendors you can pay
  • Are there amount limits?
    • Amount limits do exist, but in those cases alternative payment channels can be uses

What does a typical flow look like?

  1. Business determines we are running on short supply of key materials
  2. Arrange for urgent PO/Invoice with supplier
  3. Use RTP network to validate if receiver bank participates in the RTP network
  4. Confirmation within seconds
  5. Execute RTP and receive initial confirmation immediately from payer bank
  6. Update status of RTP within seconds and get confirmation that supplier received funds from receiving bank
  7. Provide proof to supplier of funds being credited
  8. Goods are released/shipped

 

Learn how to streamline and centralize  B2B instant payments here

AFP Report: A "major step change" in the evolution of payments

According to the 2022 AFP Payments Guide,  real-time payments — instant payments –are at the core of the payments evolution with treasury sitting at the epicenter. Because the business as a whole relies on cash visibility, the greatest value associated with processing real-time payments depends on treasury and the business having real-time visibility over cash flows and positions.

” While it is possible to make real-time payments, the bigger question for many treasury practitioners is whether they can access information in real time regarding the balances and transactions on their accounts, particularly incoming payments.

Real-time visibility will be important if an activity is contingent on specific payments being received orfunds in an account reaching a certain amount. For example, treasury may want to wait until certain funds have been received before releasing a particular payment. This is important for organizations where banks charge for intra-day credit or where intra-day overdrafts are not permitted.”

 

How do bank APIs deliver even better Instant Payment capabilities?

APIs are today’s most secure form of technical communication between two parties. They leverage the latest and greatest in technology and enterprise security standards, while being available 24/7/365.

The security is built into the channel and the data – since they’re one in the same – and includes multiple types of security like certificate exchange, user credentials and data encryption. With bank APIs there really are no files, so there’s no way to intercept or compromise the data.

Leveraging APIs, corporate treasurers and finance professionals have greater control and visibility over their data by offering real-time capabilities embedded in their ERPs.  This direct ERP connectivity brings real-time data into play, allowing treasuries to work off the most up-to-date information available, whenever they need access to it.

The result?

Treasurers get end-to-end, instant payment visibility and immediate confirmation of payment status, while also leveraging 100% of the data needed to maximize clearing of payables and receivables open items.

With FinLync’s technology, corporations are connecting directly to their banks using an API secure connection and ERP-embedded apps, removing barriers, creating secure and on-demand direct connections to the banks via APIs for real-time payment initiation, greater visibility into payment statuses, and enabling automatic reconciliations that continuously improve through artificial intelligence. 

Corporations are no longer connecting to a third party and then that third party connecting to its banks. Data is not flowing through FinLync or through anyone else. Treasurers now have enough confidence that payments are initiated faster and get instant feedback and status. They are also relying less on physical security tokens across banks.

 

Essential Guide to Bank APIs

 

Mitch Thomas

Head of Solution Engineering - North America