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Originally published on LinkedIn.
If you are running an accounting firm, imagine if payments happened instantly for you and your clients, with no waiting. Well, thanks to the Federal Reserve’s FedNow Service®, that’s becoming a reality. Starting with only 35 financial institutions in July 2023, it’s now being used by 600 financial institutions, and that number’s growing in 2024. In fact, experts say real-time payments will quadruple by 2027! This means that for accounting firms, understanding how FedNow works is important. After all, if your clients have questions, ideally you’d like to be able to answer them.
So let’s get into what FedNow is all about, its benefits, challenges, and what you need to do to stay ahead with instant payments in running and managing the future of your accounting firm.
FedNow’s potential impact for accounting firms
FedNow is a significant advancement in payment systems, offering instant payments round-the-clock. This has the potential to transform financial operations for your accounting firm. With FedNow, funds are accessible immediately, enabling quicker reconciliation, improved cash flow management, and amazing client service. This eliminates the delays associated with traditional payment methods like checks, regular ACH and credit cards. FedNow Services is here to streamline processes and boost your efficiency.
Why FedNow matters for the future of accounting firms
Streamlined payment processing
The real-time payment processing offered by FedNow revolutionizes the way accounting firms handle transactions. With real-time payments, you can say goodbye to all those manual tasks and errors that used to slow you down. With transactions settled instantly, your accounting firm can expedite business payment processing, improving cash flow management and enhancing overall efficiency.
Improved cash flow management
FedNow’s provision of real-time funds has a transformative impact on cash flow management for accounting firms and their clients. With instant access to funds, you can anticipate and handle cash coming in and going out much more effectively. This flexibility lets you seize opportunities and navigate economic ups and downs with confidence, ensuring your long-term financial stability.
Reduction in payment delays and overdrafts
Reducing payment delays and overdrafts is a big win for accounting firms, and FedNow is the hero here. With the FedNow Service, transactions are settled instantly, which means no more waiting around for funds to come through. This is a huge improvement compared to traditional payment methods like regular ACH, credit cards, or checks, which can take anywhere from 3 to 10 days to process. On average, it takes about 47.85 days for business services to get paid.
About 89% of businesses said that late payments stopped them from growing. On average, businesses owed $300,000 in late payments. Plus, businesses spend a lot of time – around 14 hours a week – trying to collect payments. These numbers show how tough it can be for businesses to manage their money. FedNow can solve this problem for accounting firms.
Impact on accounting firms’ clients and receivables
The impact of FedNow extends far beyond your accounting firm’s internal operations—it also greatly benefits your clients and their receivables. Thanks to FedNow’s real-time capabilities, payment processing is faster, resulting in shorter payment cycles and improved liquidity for our clients. This improved financial health boosts their overall well-being and strengthens client/vendor relationships. With FedNow’s ability to reduce the risk of payment delays and overdrafts, disruptions to receivables are minimized, ensuring a steady cash flow for both your firm and your clients. The future of accounting firms is looking positive and steady.
Preparing for FedNow implementation
While FedNow offers great benefits, getting it to work with your systems can be complicated as you switch away from checks and credit cards. You need to plan carefully and invest in your tech setup to make sure everything runs smoothly. You’ll need to learn all about it and update your procedures accordingly. This could mean changing your rules, training our team, and setting up new ways of handling financial operations.
Sure, these changes will take time and effort, but they’re crucial if you want to make the most of what FedNow has to offer and keep up in your ever-changing industry. By tackling these challenges head-on, you can make the transition smoother and fully enjoy the benefits of FedNow’s faster payments.
Try instant payments with Forwardly
Compatible with The Clearing House’s RTP Network and the FedNow Service, my app Forwardly seamlessly integrates with accounting software such as QuickBooks Online and Xero to make sending and receiving business payments easier. Automate and simplify reconciliation, send unlimited bill payments for free, optimize your cash flow management, and slash processing fees by up to 80% without the need to open a new bank account or pre-fund a digital wallet.
