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Managing the risks of faster payments

Cash is the lifeblood of small businesses and late payments put SMEs in a tight spot. Recent research suggests that late payments cost UK businesses as much as £51.5 billion annually.

These delays have serious effects. One in seven UK business owners have at some point found themselves unable to pay employees on time because of cash flow issues. While, for more than a third (38 per cent), cash flow problems have left them unable to pay debts, including payments to their own suppliers. And that means the effects of that initial late payment to one company can ripple out across the supply chain.

The government has taken steps to help small businesses deal with the cash flow crunch caused by late payments, including funding for technology to help make payments easier and assuming responsibility for the voluntary Prompt Payment Code.

Furthermore, companies and organisations devoted to improved payment speed, most notably Faster Payments in the UK, are creating a landscape where speedier payments for businesses are now a reality. In the UK, Faster Payments transferred £1.7 trillion in 2018 alone.

Increasing the speed of payments and fund transfers is helping businesses, including many SMEs, keep their money moving and working for them. Funds that had previously taken days or weeks to receive and clear are now, in many cases, available within minutes or hours. Similarly, SMEs can arrange quicker payments to suppliers, ensuring good relations.

Faster transactions, however, also mean faster fraud. Criminals want to complete their scams and get away with the cash as soon as possible. For this reason, many fraud attempts try to create a sense of urgency, hoping to get the target to act before thinking.

A fraudster may, for example, send an email claiming to be a supplier and saying they have changed their banking details and requesting payments be sent there. Or a phone call may claim to be from a financial institution or payment processor, claiming your information has been compromised and requesting you to transfer your funds to a new ‘secure account’ the criminal has set up. Losses in the UK from this type of fraud were £145.4 million during the first half of 2018. Unfortunately, such frauds may not be covered by existing consumer protection rules, leaving you out of pocket if you fall victim.

There is ongoing discussion on how to protect fraud victims, including an industry-led proposal that may see users charged a fee to create a pool to reimburse victims. Until there is clarity and full security for users, a savvy SME will take the following steps to reduce the risk of payments fraud:

  1. Never disclose security details, such as your PIN or full password
  2. Don’t assume an email request or caller is genuine when they ask you to make payments
  3. Don’t allow yourself to be rushed
  4. Listen to your instincts. If you have doubts, investigate further before acting
  5. Remember you’re free to say ‘no’
  6. Keep up-to-date on fraud news and trends

Proper security measures can help businesses realise the benefits of real-time payments schemes and reduce risks. After the introduction of Faster Payments in 2008, fraud did increase but subsequently reduced, through revised processes and technology. By 2013, fast payment fraud in the UK was barely higher than losses associated with cheques. Fraud is not inevitable.

Fast payments and transfers are transforming the way SMEs do business and helping to alleviate the cash flow crunch. Whether its receiving payments quickly or ensuring all your suppliers are paid in a timely fashion, the benefits are clear and with reasonable care, the risks are manageable.

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Managing the risks of faster payments
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