As the old mantra goes, if something ain’t broke, don’t fix it. However, this doesn't apply to payment methods and certainly not conducive to innovation.
Most accountants who process payments on behalf of clients are likely to use Bacs (Bankers’ Automated Clearing Services), the oldest payment method, which has been in use since 1968. Its popularity (in 2020, 6.4bn Bacs payments were made) is based on its familiarity with users, low cost and relative flexibility (it can be used to set up recurring payments by Direct Debit).
However, it is far from perfect. Its biggest downside is that transactions clear at a snail’s pace. Typically Bacs payments take three working days to clear. This can be a real drain on processes and productivity as it means payment runs have to be planned upfront and create the risk of employees and suppliers not being paid on time.
Instead of Bacs, accountants should consider using the Faster Payments network for payroll and client supplier payment runs. Its main benefit is that transactions clear within two hours, meaning that suppliers can be paid at short notice and - here's the important part - not put a strain on cash flow from paying out funds sooner.
What is Faster Payments?
The Faster Payments service is a UK innovation, created in 2008, initially to serve as a way of clearing retail payments more promptly than Bacs.
It is now becoming available to the general population and is offered by more than 30 financial institutions, including the big banks, who are directly connected into the Faster Payments scheme, providing them with first hand reliability and visibility of this important payment rail. Modulr is one of a few non-banks (i.e. FinTechs for the most part) directly connected into the Faster Payments network around which we've built our payments platform to enhance real-time payments further. Accountants access Faster Payments use via Modulr's Payments Dashboard.
Faster Payments can transact payments with a value of up to £250,000.
A compelling benefit of Faster Payments over Bacs is faster clearing. While transactions can take up to two hours, in most instances, they clear within just a few seconds.
This puts less of a strain on accountants as they can be more agile at completing payment runs for clients at short notice. This also allows them to run their operations more smoothly by not having to plan payments several days in advance, with the added risk of a further delay by clients not initially responding to approval requests.
Payments sent 24/7
Unlike Bacs, which is only available on business working days, Faster Payments can be sent 24 hours a day, 365 days a year.
This makes it easier to make payments that fall due on specific non-business working days, such as weekends or bank holidays. Overcoming these restrictions means that admin time can be saved from having to second guess when to set up Bacs payments which have to be cleared by a specific deadline (i.e. staff payroll or payment to a key supplier).
Working capital benefits
The instant nature of Faster Payments enhances the working capital of businesses by invoices and payments only having to transact and leave bank accounts on the exact day they fall due.
Unlike Bacs, this allows businesses to preserve their cash, rather than putting an unnecessary strain on it by setting up payments three days before funds need to clear.
As cash flow failure is one of the most commonly cited reasons for business failure, boosting working capital will also help many businesses survive.
Automation and security
Making payments on behalf of clients is a big responsibility. It can be easy to set up the payment details of suppliers incorrectly by getting just one digit wrong in bank account numbers.
Bacs payments are typically set up using manual processes to upload files and enter data, creating the risk of human errors.
Confirmation of Payee - an anti-fraud initiative which enhances Faster Payments - provides greater assurance that you won’t send payments to the wrong account by using automation to check the payee name, account number and sort code. If the details don’t match, it’s automatically flagged to the end-user, telling them to reconfirm details and process with caution.
Automation and security measures can be further enhanced by accountants using the Modulr Payments Dashboard and allowing clients to be the final approver on all transactions.
Cash flow forecasting benefits / real-time data
The instant clearing of Faster Payments transactions results in real-time bank balances, giving accountants and their clients' accurate cash balances at any time.
This makes it easier for accountants to help their clients put together accurate cash flow forecasts and plan for a range of different scenarios, such as the impact of taking on new staff or accessing debt finance.
So, while Bacs payments are popular - they’re widely adopted, familiar to accountants and cheap to transact with - Faster Payments enables accountants to run a faster, more secure and premium service. Which means they can serve their clients’ needs better and that, ultimately, is a worthwhile reason to switch.