Faster Payments Mean Real Supply Chain Gains

Real-time payments can bring much more flexibility—and potential profit—to businesses of all sizes. Following Covid’s chaos, that’s good news.

Supply-chain chaos has forced many companies to adopt new strategies to keep goods moving and meet demands for fast funds. The financial-services industry is no exception to the growing demand for payments innovation. The need for immediacy in payments continues to directly impact supply-chain productivity and cash flow.

But beyond boosting productivity in the supply chain, real-time bank transfers are the future of payments, with more than 85% of businesses hoping to convert to real-time transfers this year. Faster payments further positively change the supply chain and financial-service providers in a few ways.

Businesses want to bridge the gap between the supply-chain crisis and their payments technology. With transactions that take up to three or four business days to complete, the lack of immediacy hurts both cash flow and supply-chain productivity.

For example, many manufacturing firms put production on hold until they can guarantee invoice settlement to offset their workers’ wages and other variable costs. And downstream transportation providers have challenges with increased costs, shifting labor availability, and inconsistent delivery schedules.

When supply-chain issues and other economic disturbances arise, the ability to settle and clear payments in real time can provide stakeholders with immediate access to funds. These organizations benefit from greater flexibility when managing funds, and making timely payments becomes much more manageable. As a result, faster payments can lead to a more efficient supply chain, driving economic growth.

Connecting Data

To provide a simple overview, with real-time payments a company can immediately pay its supplier once an invoice is received. This ensures production begins sooner and ultimately minimize delays in the delivery of goods or services.

Instant payments can also help give companies a competitive advantage when working with other business partners. Partners can prioritize which orders to fulfill based on which company offers the best payment terms or can pay the fastest. If a company can pay an invoice instantly, it can get the supplies it needs sooner rather than later.

Beyond helping boost supply-chain efficiency, the ability to settle and clear payments in real time offers greater cash-flow visibility, which can make for better money management. Concerning cash-flow management, businesses of all sizes want immediate access to funds, and many would be willing to pay more for faster payment availability once they’re initiated.

One of the benefits of real-time payments is the ability to connect information about the payment to the transaction itself. This helps keep all parties updated on the payment details, ensuring everyone is informed about when a payment has been received and what it’s for. With this additional payment information, businesses can optimize their working capital.

Consider a health-care clinic, for example. The clinic must send bills to insurers and patients, process the payments, and reconcile the payment data associated with those transactions. The company must have a clear view of its payment data to make optimal business decisions about insurers, patients, and the health-care providers employed at the clinic.

For merchants, real-time payments not only make it easier to manage cash flows but can also make it easier to track inventory and forecast future sales. This helps businesses manage their inventory and staffing needs and can even help determine when and where to invest in new technology or equipment to drive growth and boost profitability.

Flexible Enough?

As we approach the upcoming launch of the FedNow service, financial-services providers nationwide must consider how they plan to address the growing business demand for faster, more efficient payment processes.

And as more businesses look to adopt instant payments, financial institutions should also consider their faster-payment strategies and the implications for their institution’s product offerings, existing technology and core-banking systems, back-office workflows, and customer-facing applications.

As new use cases for faster payments are identified, and businesses’ needs and expectations shift, financial institutions should expand their focus and ask themselves whether or not their underlying technology is flexible enough to adapt to evolving customer and regulatory needs.

For instance, many financial institutions often operate a half-dozen or more platforms to process payments based on the payment type, such as automated clearing house, wire, and more. Back-end systems are even more complex for financial institutions acquired or merged with other institutions.

These systems are typically siloed, making capturing or properly using data and analytics difficult, if it’s even possible. However, good transaction data can help a financial institution understand how its business customers transact and which new payment options might be most helpful.

Financially Resilient

More than one-third of businesses want to improve the speed and effectiveness of making and receiving payments, according to the latest edition of the American Express Global Business Spend Indicator (GBSI). Clearly, businesses understand the value of faster, more efficient payment processing.

Faster payments create a unique competitive advantage for businesses of all sizes, including reduced costs, improved supply-chain efficiencies, and better money management. Instant payments have the potential to fuel economic growth on a large scale, boosting bottom lines for businesses across the country.

And for financial institutions, real-time payments open up opportunities for new revenue streams and ensure liquidity through the efficiency gains offered.

Those that invest in faster payments now will reap the benefits sooner rather than later and position their organizations for success, despite inflation, supply-chain disruptions, and more.

With faster payments, navigating these economic hurdles is much
easier and ensures businesses, including the financial institutions that provide those services, are financially resilient and optimized for growth.

—Abhishek Veeraghanta is the chief executive of Pidgin.