The five W’s of request for payments

In an age where technology has given rise to “anytime, anywhere” banking, it stands to reason that traditional billing methods – specifically the process of mailing a bill with a predetermined due date – would be long overdue for an overhaul.

That time is upon us and not a moment too soon because the working economy has changed dramatically in recent years, increasing the need for a more financially inclusive payment method.

Standard 40-hour work weeks that provide a predictable pay cheque twice a month are increasingly becoming the stuff of lore. Instead, many workers engage in zero-hour contracts that don’t guarantee those hours and a gig economy that employs more than five million with a pay structure that is anything but consistent.

Not an environment that’s ideally suited to rigid recurring payment structures.

Enter Request for Payment (RfP), a new payment mechanism being proposed by the UK Faster Payments Scheme in the UK, slated for release in the next couple of years. This could allow billers to send individual requests for payment directly to their customers including via their mobile device. The customer would then have the option to make the payment, defer it to a more convenient time, choose a part payment or enter into a dialogue with the biller. RfP would supplement existing payment methods, including the staple method of Direct Debit, giving customers more control and flexibility over the timing of their outgoing payments to fit with their cash flow needs.

In addition to helping customers manage their bill payments and cash flow more effectively, supporting individuals with their financial decision-making and creating a better channel for direct dialogue between payers and billers, RfP also represents tremendous opportunity for the UK economy. In 2015 the total volume of person-to-business regular payments was 4.9 billion. Accenture estimates that 1 billion of these payments could be replaced by RfP, with an annual economic benefit of £1.3 billion.

RfP is an option that’s thoroughly up-ending traditional payment paradigms for the business world.

It’s understandable that the thought of customers being able to pay a given bill whenever it’s convenient for them would be met with a healthy dose of resistance and a sprinkling of panic thrown in for good measure. Traditional invoices with a pre-set due date are successful because they ensure predictable cash flow, right?

You’d think so, but that’s not entirely true.

Set due dates really only work for people who have a predictable inflow of cash and can therefore budget for recurring expenditures effectively. That’s why Direct Debit has become the preferred method of payment but has not created universal coverage across all payee types. For the growing number of the population that experiences ongoing fluctuations in their cash flow, set due dates are nothing more than a burden preventing payment.

If the money isn’t available, then a payment just isn’t possible, triggering unexpected bank fees, exceptions processing and a poor overall customer and biller experience.

Yes, traditional due dates feel as though they provide a comfortable level of structure over the payment process, but all they really do is pose a host of constraints for people who legitimately want to pay their bills but just need some additional flexibility to do so.

Organisations should be encouraged that RfP is becoming a reality, because it offers a number of significant cash management benefits that aren’t available with other payment methods:

• Potentially better cash flow as instances of default decrease due to greater flexibility for payers
• Efficiency increases and cost savings of not having to chase late payments and cover bank fees
• Decrease in cost to process each payment compared to the invoice-to-pay process – by as much as 8 per cent
• Ability to use the RfP mechanism to pay vendor bills when it’s suitable as a means of optimising working capital

And let’s not forget the customer service benefits that can be achieved by providing customers with greater flexibility. By eliminating the prescriptive approach to bill collection, RfP fosters a friendlier, partnership-focused relationship between organisations and customers that is always better for business in the long run.

There is still some work to do to make RfP a widely adopted reality, as well as a number of more detailed questions around consumer education and development and launch approaches as part of the Payment Strategy Forum’s plan for the UK. One thing, however, is very clear – some markets are already early adopters and RfP is the next logical step in a constantly evolving payment landscape. Giving customers more flexibility and control over how and when they pay their bills in a noisy digital economy will not only be good for customers, but for business as well.