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The Pros and Cons of Real-Time Payment

July 30, 2021

This article originated from the Xero blog. The XU Hub is an independent news and media platform - for Xero users, by Xero users. Any content, imagery and associated links below are directly from Xero and not produced by the XU Hub.
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Managing your cash flow is essential in running a solvent business. Being able to make and receive payments quickly means that you’re able to pay your suppliers and staff, maintain liquidity and avoid interest, fees and charges that can eat into your profit margins.

The faster you can get paid and make payments, the happier and less stressed you’re likely to be. Real-time payments may seem like a great boon for your business, and they certainly have a wide range of benefits, but they are also not without their caveats.

Here, we’ll look at the pros and cons of real-time payments so that you can make an informed decision about making and receiving them.

What are real-time payments?

Real-time payments are payments made using a dedicated clearing and settling network to facilitate instantaneous transactions. Many confuse real-time payments with same-day payments, but these differ in the way they are settled.

Same-day payments are processed in batches, as such payments are required to be submitted within a specific time window. Real-time payments, on the other hand, are processed instantly.

In the US, real-time payments are managed by the Automated Clearing House, while in the UK they are managed by Faster Payments.

The benefits of real-time payment

Real-time payments can be highly beneficial for SMEs. Let’s take a look at the benefits of adopting this system.

Improves cash flow

Real-time payments make your funds more readily available, and aid liquidity. Because payments are cleared in seconds rather than hours (or days), you can be much more agile in your budgeting and cash flow management.

Boosts efficiency

SMEs are always looking for ways to trim the fat off their operations, and eliminate waste of time, effort and resources. Real-time payments are extremely time-efficient, eliminating the operations necessary for paper-based payments.

Can aid in growth   

Businesses that have their sights set on growth often find that new innovations can give them a much-needed competitive edge. Real-time payment is a great example of this. As the business landscape becomes more globally interconnected, we can expect real-time payments to play a key role in facilitating seamless overseas transactions. Why not get ahead of the curve now?

The disadvantages of real-time payment

As we can see, real-time payments can be beneficial to SMEs like yours in several ways. But are there any disadvantages to this payment method? While real-time payments are potentially invaluable to businesses, uptake has been a little slower than anticipated. This may be owing to the challenges that real-time payments systems represent.

Let’s consider some of the potential disadvantages.

Potential risk

The fact that real-time payments are settled instantly can be both a blessing and a curse. The instant settlement leaves no margin for error. As such, there’s no time to correct any errors that may have been made in payments after they are sent. This means extra vigilance is required and that mistakes can be tedious and time-consuming to correct.

What’s more, whenever a new payment method arrives, a new breed of security risks are sure to follow. However, as real-time payments become more ubiquitous, we can expect the infrastructure to evolve to counter them.

Cost barrier

Adopting any new technology or infrastructure can be costly. A seamless transition to real-time payments may require substantial changes to your systems. This may require significant upfront investment.

We Can Help

If you’re interested in finding out more about making and receiving real-time payments, or any other aspect of your business finances, then get in touch with our financial experts at GoCardless. Find out how GoCardless can help you with ad hoc payments or recurring payments.

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