Published on 4 July 2019 and previously by

There appears to be a consensus that the world economy, and particularly parts of the Eurozone, are slowing down or even already in recession. For Cash Managers this is always the signal for tightening the belt, so as to ensure that their principle objective is achieved: to have the right amount of money in the right place at the right time. Typical first notches on the belt are:

  • Collect payments quicker;
  • Make payments later

To this end, attention will focus on the payment schemes that may have been in their infancy or unavailable at the time of the last downturn, in 2007-8. Amongst these Cash Managers will surely eschew cryptocurrencies as a store of value and means of exchange, and concentrate on payment schemes in traditional currencies (often called “fiat currencies”) that are, or claim to be, instant.

The UK’s Faster Payments scheme in GBP was in its infancy in 2008. In November 2017 it was joined by the SEPA Inst scheme in EUR, grounded on the core&basic SEPA Credit Transfer Scheme whose timing is D+1.

It certainly makes sense to make the option of payment by bank transfer available to a company’s debtors, although whether the payment then arrives via instant payment or via a bulk payment service depends on factors beyond the Cash Manager’s control

  • Whether the debtor’s bank is connected to the instant payment service in question;
  • Even if the bank is connected, whether the quality of the connection results in a genuinely instant payment from end to end, or a payment within the maximum allowable time: the UK’s Faster Payments scheme rules allow up to 2 hours;
  • Whether the channelling of the payment by the debtor’s bank into the instant or bulk circuit is dependent upon how the debtor initiates the payment;
  • Limits on payment size.

To this last point, the European Payment Council’s rules for the SEPA Inst scheme limit an individual payment to €15,000, although there is no limit on the number of payments in a file that a debtor can send to their bank: the bank will just send the SEPA Inst payments through individually. It is conceivable that a debtor-to-bank file may contain a mix of payments that the bank will send:

  • If marked as urgent, via TARGET or another wholesale payment system if they are above €15,000 or if the destination bank is not reachable using SEPA Inst;
  • If marked as urgent, via SEPA Inst if the destination bank is reachable and if they are below or equal to €15,000;
  • If not marked as urgent, via SEPA Inst if the destination bank is reachable and if they are below or equal to €15,000, and if it makes sense for the bank to do so. For instance, if the payment is amongst the bank’s first 10 million SEPA Inst items that it sends through the European Central Bank’s TIPS service before the end of 2019, which are free-of-charge. After that date and/or for payment #10,000,001, the price is 2 eurocents per item, which may be competitive with other options available to the bank;
  • If not marked as urgent and SEPA Inst cannot be done cheaper, via the basic SEPA Credit Transfer Scheme whose timing is D+1 .

Creditors will not be in a position to demand of debtors that a payment be made by SEPA Inst, but they can enable it by putting IBAN+BIC on their invoices and maintaining an account in Euro within the SEPA Area.

As regards the UK, the amount issue is more complicated: the Faster Payments system precludes payments above £250,000, but the scheme rules do not mandate upon the banks that they allow their customers to make payments of this size.

The original Faster Payments system limit was £10,000, and even when it was raised to £25,000 and beyond, banks imposed a lower limit on individual customers, and indeed a lower limit on retail customers than on business customers of the same bank. In addition, there is a scheme rule that payments must be initiated via an electronic device (PC, mobile phone, tablet), or be a standing order that is held on a computer at the bank.

At least practically all payment accounts in the UK can be reached with a Faster Payment.

For business creditors the upshot of that is that banks will tend to offer a bulk file service, in which the customer can mark certain payments as urgent. Then it will be up to the bank’s policies and its processing capabilities as to whether the payments are sent same-day – in which case they will be executed through the Bank of England’s CHAPS system or via Faster Payments, or via BACS, the bulk payment service which operates on D+2.

At least the creditor can be reasonably certain that BACS payments will not be debited to their account with value D when the bank only executes them on D+2. The bank may place a reserve on the creditor’s account for the intervening two business days, or not, depending upon the bank’s view of the creditor’s creditworthiness.

Since these instant payment schemes have been designed with retail customers in mind, and in particular retail customers operating in the eWorld, it should not come as a surprise that there is only a partial match with the requirements and processes of business customers.

Crucially, instant payment schemes are conceived as servicing individual payments, and ones initiated by a consumer directly onto a device – as opposed to servicing files of payments for which the instructions are held in a computer system.

Nevertheless, in times of recession a debtor should at least make it possible for their customers to pay them via bank transfer, and there are fringe benefits to that in terms of no rolling reserve or interchange fees.

A creditor should be able to delay initiation of payments for day or two if a portion of those payments will then be sent through an instant payment system at no increased cost to the creditor. But the available instant payment schemes are no silver bullet for squeezing an extra week or more out of the Order-to-Cash and Purchase-to-Pay cycles.