Payments are the lifeblood of every business, but reconciling payments requested with payments received can be an onerous task – encouraging some corporates to describe themselves as being the victims of receivables rather than in control of the process.
The two main problems facing corporates is that they only receive their money when the customer wants to pay them, and they only receive the information that the payer chooses to provide. This makes reconciliation difficult and negatively impacts workflow and even working capital.
Request to Pay (RtP) starts with the corporate that is looking for payment sending a request to their bank, which is forwarded to the bank of the payer. The bank of the payer then asks them if they want to make the payment.
RtP not only supports the dunning process, it also enables smoother reconciliation because the payer will not be able to modify the payment references detailed in the request, enabling every payment to be automatically matched into the corporate’s enterprise resource planning (ERP) system and thus reducing processing costs.
There are already various tools available to corporates to transfer data from paper invoices into their ERP systems, but as RtP is a paperless process, leading ERP vendors are expected to start reading the technical data of these requests and no longer require invoices to be sent.
“Request to Pay is not a payment instrument, but rather a solution to trigger a payment, so the user experience is vital,” explains De Roeck, who is also a member of the European Payment Council (EPC) multi-stakeholder group on RtP. “Payers want a simple experience that allows them to make a payment from their bank account in a trusted environment regardless of their location.”
De Roeck observes that a number of pan-European banking groups have expressed interest in the service, although there is recognition that adoption rates will vary from country to country given the impact of culture on how people make payments.
For example, Belgians favour credit transfers whereas in Spain customers prefer to receive a direct debit request – ECB data indicates that almost 28% of payments in Spain are made by direct debit compared to fewer than 13% in Belgium.
Some local solutions have been developed to help corporates manage their receivables, for example by delivering invoices and pay slips to customers’ online bank accounts from where they can make payment. The current EPC initiative will offer a pan-European service, but other providers are looking to make it even wider. Time will tell what the future brings, but RtP will not be limited to Europe.
The value of RtP being delivered through a trusted channel is that the payer has the assurance that the transaction has been verified before any money is taken from their account, says Servranckx.
“We have worked hard to ensure that RtP supports partial as well as full payments,” he adds. “This is particularly important for corporates that are issuing invoices for large amounts and are faced with a situation where the customer is querying a relatively small percentage of a very large invoice.”
In this scenario, many companies would rather have the option of receiving the bulk of the payment and then negotiating with the customer over the outstanding amount.
“Service levels will enable the payment initiator to choose whether the amount can be modified by the payer,” says Servranckx. “In a B2C environment where the amounts are relatively small we would expect corporates not to allow the amount to be modified, but for B2B transactions where the payee does not avail of this option they would have to accept full payment or nothing at all.”
This final point highlights the value of RtP in facilitating smoother payments between businesses. While much of the discussion around the service has focused on its potential to make it easier for consumers to make payments, there is considerable value in RtP as a mechanism for improving B2B payments.
Of course, RtP does not guarantee that a payment will be made, or how quickly. However, anecdotal evidence from e-invoice providers suggests that when invoices are sent electronically directly through the banking channel, rather than via email or post, around one in five are paid on the day of receipt.
The EPC’s Request to Pay proposal is expected to go to national consultation either late this year or early 2020. “The target is to have a platform up and running by the end of next year and for some banks to be running pilot projects and proof of concept by then,” concludes De Roeck.