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Business owners and accountants are always on the move, tirelessly managing their business (or their client’s business). Outdated payment methods like checks, wire transfers, and “instant ACH transfers“ are holding them back. Small and Medium-sized Businesses (SMBs) are a tricky beast since most SMBs are a single person, used to using apps like Venmo and Zelle in their private lives. These days, they expect their business payments to happen as instantly as their personal payments. The shift towards real-time transactions is changing how we move money. And at the driver of this change for small businesses is the FedNow Service from the Federal Reserve. 

The days of waiting for payments to clear and to show up are quickly disappearing. If you’re a SMB owner, accountant, or CFO, it’s crucial to grasp why this shift is integral and how FedNow instant payments can help your business.  

 

The swift shift to real-time payments: What’s changing?

The United States lags numerous other developed and emerging economies in the domain of real-time payments. Only 38% of the businesses in the USA are using the RTP Network which was launched by The Clearing House (TCH) in 2017, and another 18% are planning to adopt instant payments by the end of 2024. The current US payment system heavily relies on the Automated Clearing House (ACH) payment system, wire transfers, and checks, leading to frustrating delays of days or even weeks for funds to be settled. However, the introduction of the FedNow Service promises a significant opportunity for payment innovation and accessibility. 

Since the FedNow Service launched in July 2023, over 57 financial institutions and service providers have been certified as Ready for the FedNow Service, and it is expected to support hundreds more soon. It hopes to bring new and innovative banking products and services that support instant payments, shaking up the financial world with excitement and focusing on customers’ needs. 

 

How does FedNow make faster payments?

The FedNow Service is all about supercharging payments, ensuring they happen almost instantly – within 20 seconds. This means that when you make a payment, the money will be available to the person you’re paying in real-time. Plus, this service is available outside of bank hours, including on evenings, weekends, and holidays; it’s truly a 24/7/365 technology. 

The process starts with the payer initiating a payment by sending a payment message to their financial institution. This can be done through their bank’s interface or a third-party payment service provider’s platform. Upon receipt, the payer’s financial institution reviews the payment instructions. Assuming the payer has enough funds available, they grant approval for the transaction and transfer the money. 

 

The FedNow Service is all about supercharging payments, ensuring they happen almost instantly; within 20 seconds.

 

FedNow Service vs. RTP Network: What sets them apart?

The FedNow Service and the RTP Network may seem quite similar, but there are a few key distinctions to keep in mind. The FedNow Service has a special feature that sets it apart: it’s open to any depositary institution that meets the Federal Reserve’s requirements. In contrast, The Clearing House’s RTP Network is exclusively available to federally insured institutions.  

Another difference is the transaction limit. The FedNow Service will set a cap at $500,000 for each transaction, while RTP allows transactions up to $1 million. This means RTP can handle larger sums of money in a single transaction. Additionally, who’s running the show matters too. The RTP Network operates under a consortium of some of the largest banks in the US. Whereas FedNow Service is operated by the Federal Reserve Bank, which brings a different level of oversight and support. 

While FedNow shows promising potential for expansion, the RTP Network presently holds the lead in terms of banking adoption.
 

How does FedNow benefit small businesses?

Faster access to funds: FedNow speeds up how B2B payments work, making your money available super-fast. This means businesses can quickly use their funds for things like growing, managing expenses or paying bills. And the best part? You can do this 24/7/365, even on holidays. Your payment is processed in just seconds, so you don’t have to wait around. 

Improved AP: With FedNow, you can hold onto your cash until the last minute, giving you more control over when you pay. This flexibility optimizes cash flow management by capitalizing on opportunities for growth while retaining control over outgoing payments. 

Enhanced security: FedNow utilizes the ISO 20022 standard, which allows for the inclusion of more detailed transaction information compared to the limited 94-character limit of the ACH system. This added information enhances the security and transparency of transactions, reducing the risk of errors or fraud. 

Reduced Transaction Costs: FedNow instant payments simplify how you pay, which saves you money compared to old-fashioned methods like checks, wire transfers, or ACH. These traditional ways can be costly. Real-time payment systems like RTP or FedNow typically have very low transaction fees, often just a few cents per transaction.

Improved Relationships with Vendors: FedNow instant payments will exceed client expectations and contribute to higher satisfaction levels. They’ll love you for it, and that can lead to better deals and stronger relationships. 

Enhanced Cash Flow Management: With FedNow’s instant payment availability, businesses can manage their finances more effectively. This real-time cash flow visibility enables better decision-making, allowing companies to seize opportunities and navigate cash flow challenges proactively. 

Seamless Integration: Small businesses can smoothly integrate FedNow into their existing systems for a more efficient payment experience.  With user-friendly onboarding and ongoing support, modern payment solutions like Forwardly make the shift to instant payments hassle-free. Plus, Forwardly seamlessly integrates with your Xero and QuickBooks Online accounting software, ensuring a smooth transition to instant payments. 

 

Preparing your small business for FedNow instant payments

Small businesses looking to prepare for the FedNow instant payments network can start by assessing their current financial infrastructure and identifying any gaps in technology and processes.  

If you want the easiest way to adopt instant payment technology, Forwardly’s instant payments app supports both The Clearing House’s RTP network and the FedNow Service. It also integrates with leading accounting software brands like QuickBooks Online and Xero to make reconciliation painless and seamless. Using Forwardly, accountants, small business owners, CFOs, and bookkeepers can easily improve their cash flow management and save up to 80% on traditional credit processing fees.  

Revolutionize how you accept payments today and start thinking Forwardly 

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