FedNow is live for financial institutions! What does it mean for A/P?

On July 20, the Federal Reserve announced the FedNow Service, a 24/7/365, instant payments system, is officially live.

Touted as the biggest upgrade to the U.S. payments system in 50 years, FedNow looks like it’s going to be more than just a new rail for B2B and B2C payments. It could potentially transform the way cash flow is managed, speeding transactions through banks without processing delays and enabling real-time access to funds and even faster just-in-time bill payments.

In a press release from the Fed, chairman Jerome Powell said, “Over time, as more banks choose to use this new tool, the benefits to individuals and businesses will include enabling a person to immediately receive a paycheck, or a company to instantly access funds when an invoice is paid.”

FedNow’s impact on A/P

FedNow promises to deliver payments in 20 seconds or less via bank channels, dramatically optimizing processes that typically take hours or days.

Also, the service’s Request for Payment feature has the capacity to attach rich invoice details, such as highly-specific payment terms and remittance info, along with the payment, ensuring all necessary information is there to support quick reconciliation.

With that kind of speedy billing data transmission available for upload into the payables system for processing, this will spark a lot of CFOs to integrate their A/P and A/R systems and automate the reconciliation of payments, reducing errors and exception item handling and enabling capture of more early payment discounts.

In addition, the payments are settled immediately between financial institutions and there’s no risk of a payment failing due to insufficient funds. The payee receives immediate confirmation that payment was accepted.

Will FedNow be right for you?

Let’s say your financial institution decides to join the 54 banks, service providers and other entities that have already signed on as participants in the FedNow network to provide instant payment service. There are still several important questions to ask to evaluate whether instant payments are right for your business. Among them:

• How will our bank support the invoice and remittance data flows, as well as the automated uploading of the data into our accounting software?
• Will our current A/P, A/R or treasury management solution software be able to support instant payments? If not, what are our vendor’s plans for adding instant payment capability? Will new or updated software provide ROI, for example, from labor-saving and process efficiency standpoints?
• What’s the plan for cash flow timing situations where it makes more sense to use a traditional payment method instead of an instant payment to pay suppliers?
• Will enough of our suppliers offer discounts if they receive their payments from us instantly?
• What kind of training will our staff need?
• How will instant payments affect A/P staffing needs?
• How will instant payments affect other process flows?