In an age where technology has given rise to “anytime, anywhere” banking, it stands to reason that traditional billing methods 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-hours contracts that do not guarantee any hours, and a gig economy that employs five million people with a pay structure that is anything but consistent.
It is not an environment ideally suited to rigid recurring payment structures.
Enter “request for payment”, a new payment mechanism being proposed for 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. Request for payment 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, request for payment also represents a 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 request for payment, with an annual economic benefit of £1.3 billion.
It is understandable that the thought of customers being able to pay a given bill whenever it is 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 preset due date are successful because they ensure predictable cash flow, right?
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 is 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 who experience ongoing fluctuations in their cash flow, set due dates are nothing more than a burden preventing payment.
If the money is not available, then a payment just is not 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 request for payment is becoming a reality, because it offers a number of significant cash management benefits that are not 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 request for payment mechanism to pay vendor bills when it is suitable as a means of optimising working capital.
And let us not forget the customer service benefits that can be achieved by providing customers with greater flexibility. By eliminating the prescriptive approach to bill collection, request for payment 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 request for payment 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 request for payment 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.