The content of this article is provided for informational purposes only. You should always obtain independent business, tax, financial, and legal advice before making any business decision.
Faster payments, also known as instant payments, real-time payments, or quick payments, allow business owners to access the money they receive from customers in real-time or much faster than with traditional payment methods. This allows them to receive money from customers almost instantly, pay suppliers or employees quickly, and manage their cash flow more efficiently.
In this guide to understanding faster payments, we’ll explain how you can choose the best payment system for you, integrate it into your business operations, boost cash flow and enhance payment security.
Why do businesses need quick payments? Because traditional payment methods often fall short when it comes to meeting the urgent financial demands of SMEs.
For example, if an e-commerce venture experiences a sudden peak in sales, the time it takes other payment systems to clear transactions (often several days) may create a bottleneck that prevents the company from restocking its inventory swiftly.
This delay can affect customer satisfaction due to prolonged shipping times. It can also limit cash flow, stunting potential expansion opportunities.
Faster or real-time payments refer to a set of electronic payment systems and services that enable near-instantaneous or significantly accelerated money transfers between individuals, businesses, and financial institutions.
This electronic transfer of funds was introduced in May 2008 to speed up the process of bank-to-bank payments1. Not only are these payments quicker (clearing in 30 minutes or less) but they are also highly secure and convenient and can provide seamless integration with other financial reporting systems.
By enabling efficient transactions with rapid fund transfers, businesses can empower more effective cash flow management and help maintain good relationships with customers, staff and suppliers. Integrating faster payment solutions can also help boost cash flow and enhance payment security.
Financial institutions are not the only route into real-time payments, although many do offer their own real-time payment systems to customers.
Payment processors provide merchants with easy-to-use payment processing solutions.
There are many options out there for a faster payment system, so it is important to decide how it will be used.
The most important consideration should be that the payment system offers the features that a business requires.
Faster payments can be made for four different types of transactions.
These are the most common type, initiated as one-off payments by customers, via mobile banking, online banking, phone banking or in a bank branch.
Payments of up to £1m can be sent at any time (although some banks do set lower transaction limits).
These one-off payments are sent and received on a predetermined date decided by the customer. An example of their use would be paying a utility bill.
These regular payments of a set amount are sent on regular dates, for example, on the first day of the month. These are usually used for subscription services.
A service for business customers in which payment instructions can be sent directly in the form of bulk files.
This can greatly reduce the admin burden on SMEs, with the same processing time and transaction limits as other payment types.
It’s important for small businesses to understand the differences between the main methods of making and receiving payments. Here is a review of Faster Payments, BACS and CHAPS.
The Faster Payment System, available at all hours 365 days a year, facilitates real-time payments of up to £1m – initiated primarily online, mobile, or via telephone banking. It is made possible by the range of banks and financial institutions connecting safely and securely either directly, or indirectly, to the Faster Payment System’s infrastructure.
BACS stands for Bankers' Automated Clearing System. It's a regulated payment system run by Pay.UK that is one of the most common ways that money is sent and received from bank to bank. It differs from Faster Payments primarily in the speed of the service it offers. It usually takes funds three working days to clear. Such payments take place directly from one bank account to another and are mainly used for Direct Debit or Direct Credit payments.
CHAPS stands for Clearing House Automated Payment System. It is operated by the Bank of England. It offers a guaranteed same-day payment system but there is usually a £25 fee per payment. For this reason, CHAPS is primarily used for high-value transactions.
Implementing efficient faster payments for a small business can be a surprisingly simple process. These can enable businesses to sell just about anywhere and get paid quickly.
With PayPal, customers can pay using different payment methods and businesses can integrate their payment solution with their ecommerce, accounting, marketing and operations tools to create efficiencies and automate tasks.
In addition, it offers payment fraud protection tools that help make payments secure and help SMEs save time and money.
Faster payments may be quick and convenient, but they also have security built into their payment processes. A good payment system adds security and helps strengthen risk management through robust encryption, multi-factor authentication, payment fraud protection and stringent adherence to industry best practices.
Such measures can help protect businesses against potential threats and help instil customer trust.
Faster payments, integrated with an efficient payment solution, can save time and give businesses the cash flow needed to grow.
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