By Adam Burroughs
With so many ways to send and receive funds, determining the right method—checks, credit cards, wire payments, electronic transfers—takes some consideration.
“Which method works best for your business and for your personal transactions depends on your circumstances,” says David Swart, Treasury Management product director at Huntington. “You need to look at what each method costs you to transact, what that transaction costs your customer, and the timeliness required.”
The newest method, Real Time Payments, was created to address the shortcomings that more traditional payment methods have shown in modern commerce. For example, RTP® delivers funds to their destination not within days but within seconds, giving the recipient nearly instantaneous access to the payment 24 hours day, 7 days a week, not just within banking hours. And RTP® transactions are accompanied by detailed, real-time data. That transparency allows for immediate correction of errors, meaning businesses can spend less time reconciling payments and more time focused on generating revenue.
Picking a payment method
Consider these five things when selecting a payment method:
- Rewards and Rebates
- Transaction Amount
Speed is a top-of-mind consideration for just about everything in commerce today, and that includes payments. With RTP®, money leaves the payee’s bank and, within seconds, arrives at the recipient’s bank, where it’s immediately available for withdrawal. Credit card payments, by comparison, can take two to three days before the recipient can access the funds as the transfer is processed at one bank, then the other.
Fees also factor into the decision. Wire transfers come with fees per transaction that vary depending on the destination. ACH transactions, processed as debits or credits cost very little, while Real Time Payments fall somewhere between those two options.
Rebates and rewards are also something to consider. While commercial cards might take a few days to transfer funds and statements contain limited data, they often come with rebate incentives that could be attractive to some businesses.
“With credit cards, businesses can get money back just for making payments, so this less-expensive payment method may make sense,” says Swart. “Just be aware that, while you can make payments with a credit card any time, that payment may take three days to process.”
Transaction amount should also be considered when determining the best payment option for your business. Currently, RTP® transfers cap at $100,000, and can only be done within the United States. For larger amounts, paying a fee for a wire transaction may be a better solution, but that method has limitations in that transactions can only be completed during banking hours. And for international transactions, especially large amounts, wire transfers—which can take one to four business days to process—may be the best option.
Security of each payment type is critical to your decision and ongoing payment strategy. Virtual cards, for example, are considered one of the more secure types of payments because the card number is only associated with a specific transaction -helping to safeguard your company’s information. Fraudsters continue to get more sophisticated with their payment scams, making it increasingly important to understand the risks and how to mitigate them for each of the payment types.
“An integrated payables solution allows you to determine, from a business point of view, the best method for each transaction—for instance, paying one with a credit card, one with a virtual card, one via ACH, and this one with RTP®,” says Swart.
As payment methods continue to evolve, Swart doesn’t anticipate traditional methods such as checks and credit cards to go away. But with all the benefits RTP® offers, he envisions a higher rate of adoption among businesses.
“At first it’s just going to be another option,” he says. “When there is a need for real-time transactions, RTP® by far is going to be your best option. And as more organizations migrate to this system, companies will begin to transform their payment infrastructure as a result of shifting market demands.”
Swart says businesses should begin a discussion with their banker about payment options and how they can bring RTP® effectively into the mix.
“A lot has happened in the banking space in the last five years, and changes are continuing to happen,” he says. “Start thinking now about how your business can begin to integrate new technologies as the space continues to evolve.”
Connect with your Relationship Manager to learn more.