Are treasurers ready for real-time B2B payments?

supplier network

What is the value proposition for a corporate treasurer to make a real-time payment to a supplier in the B2B world? When real-time payments (RTP) began three years ago via The Clearing House organization, the move was considered a disruptor. But let's take a look now.

Supplier AP payments typically represent the majority of any treasurers’ cash outflows, managing the stream of payments to vendors, regardless of industry — whether it’s tech, healthcare, manufacturing or education. Payment terms become a function of the relative bargaining power in determining payment length and instrument used. Depending on the specific trade value chain and the type of service or goods, there may be pre-payments, partial payments, payment at delivery or payment terms.

But before you disrupt B2B payments, you need to understand the legacy payment infrastructure. This is not a world of B2C, where speed and convenience matter the most. It is a messy world filled with invoices to validate, disputes to manage, credit and debit notes to apply, quality and warranty rebates to adjust, taxes to capture, and much more.

The question then is, what is the value proposition for a corporate treasurer to make a real-time payment to a supplier in the B2B world?

Card networks have attempted to enter the B2B payment space, sometimes using card rails (American Express Buyer initiated payments), and sometimes a plan to use alternative rails, like Mastercard Track business payments.

RTP enables another option to pay a supplier or gig worker versus check, PayPal, virtual card, ACH, wire or direct debit. In order to be an applicable option for vendors, it’s important to better understand what RTP is and how it could fit in a treasurer’s payment toolkit.

What is RTP?

With RTP, a vendor, supplier or biller can send messages in real time to their customers at any time. Customers then send payments directly from their bank account and get immediate confirmation that the payment has been applied. Most importantly, it’s all done in a secure network associated with The Clearing House (TCH).

What TCH has done is provide the infrastructure for banks to combine payments, messaging and data to build innovative payment solutions. We have all experienced this in the person-to-person space with near real-time payments using apps like Venmo and PayPal. Each of those apps has a different experience and less security.

Instead, RTPs provide services such as:

  • Speed — RTPs provide the immediate availability of funds within seconds, coupled with irrevocability. Most people think payments done through same-day ACH or SEPA credit transfers are immediate, but they are not.
  • 24/7/365 execution — Payments can be made and received outside of banks’ office.
  • Data rich environment — The RTP request-for-payment (RFP) function allows billers to alert customers that payments are due by sending a message containing all of the relevant biller information, facilitating reconciliation. ACH payments often have remittance information outside the payment, such as via email.
  • Fraud reduction — Because RFP-prompted payments require payers’ approval, they dramatically reduce fraud. The RTP network is strictly “credit push,” meaning that the person making the payment instructs financial institutions to authorize it.

The RTP network has a single price for all participants regardless of size, with no volume discounts, volume commitments or monthly minimums. The RTP network fee is 4.5 cents while the FedACH’s highest list price for an ACH is 0.3 cents.  The RTP transaction limit is currently set at $100,000.

Are there B2B use cases?

Based on the above value proposition, one can envision where there are times that businesses need to make a real-time payment.

Perhaps an urgent bill needs to be paid, or a seller will not release goods until a payment is made and is irrevocable. Perhaps a distribution center may not release goods for a drop shipment or to an e-commerce company until payment is made. Maybe the gig economy has an application for payment upon services rendered.

There are no doubt applications, but cases in the B2B sector appear to be more one-off, such as payment for “Joe’s seafood restaurant” wishing to pay that lobster supplier right away for a fresh catch.

Still, payment on demand in real time is now viable, and it will be interesting to watch the product innovation developments from the bank world.

David Gustin runs Global Business Intelligence, a research and advisory practice focused on the intersection of payments, trade finance, trade credit and working capital. He can be reached at dgustin (at) globalbanking.com.

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