Finality Of Payment

AAA

DEFINITION of 'Finality Of Payment'

Refers to the instant that a payment to another party is completed, at which point the receiving institution has irrevocable access to the money. This is more commonly referred to as the moment when funds are "good" in an account.

The concept and definition are especially important in an environment where one or more banking institutions could cease operations at any given moment. By having a strict operational definition of the finality of payment, a receiving institution does not have to worry about recently received funds disappearing from its account because the transferring institution suddenly became insolvent.

INVESTOPEDIA EXPLAINS 'Finality Of Payment'

With the rise of online bill payment services, many consumers have gotten a practical lesson in the finality of payment. Since many online banking and bill payment services use the Automatic Clearing House (ACH) system to process payments, which doesn't result in an immediate transfer, many companies do not consider a bill paid until after they're assured of the finality of payment. Of course, that has taught many people the painful lesson that initiating an automatic bill payment on the due date usually results in a late payment.

RELATED TERMS
  1. Electronic Payments Network - EPN

    An electronic automated clearing house (ACH) that serves as the ...
  2. Automated Clearing House - ACH

    An electronic funds-transfer system run by the National Automated ...
  3. Federal Reserve System - FRS

    The central bank of the United States. The Fed, as it is commonly ...
  4. Recurring Billing

    When a merchant automatically charges a cardholder for specified ...
  5. UDAAP

    Misleading or harmful behaviors by those who offer financial ...
  6. Convenience Fee

    A charge assessed by a payee when a consumer pays with a credit ...
Related Articles
  1. Economics

    The Federal Reserve

    Few organizations can move the market like the Federal Reserve. As an investor, it's important to understand exactly what the Fed does and how it influences the economy.
  2. Economics

    Inside National Payment Systems

    Investopedia explains: The global interconnection of U.S. payment systems makes commerical and financial transfers possible.
  3. Forex Education

    Get To Know The Major Central Banks

    The policies of these banks affect the currency market like nothing else. See what makes them tick.
  4. Options & Futures

    Demystification Of Bank Accounts

    Find out which type of account suits your specific needs.
  5. Personal Finance

    Overdrafting

    An overdraft occurs when money is withdrawn from a bank account in an amount that exceeds the funds available in the account. Banks often permit this as a form of short-term loan to the account ...
  6. Trading Strategies

    Eyeing a Loan? Consider Skipping the Banks

    Peer-to-peer lending platforms, such as Lending Tree, Lending Club and Prosper, offer borrowers newfound leverage. Here's a look.
  7. Personal Finance

    What's a Commercial Bank?

    A commercial bank is a type of financial institution that accepts deposits, offers checking account services, makes business, personal and mortgage loans; and offers basic financial products ...
  8. Personal Finance

    What's a Bank Rec?

    A bank reconciliation statement is a monthly statement from the bank showing all activity in an account during the previous month, along with the end-of-month balance. An individual or company ...
  9. Investing

    What's Investment Banking?

    An investment bank is a special type of bank involved in a variety of large and complex financial services for major institutions.
  10. Economics

    What's the Federal Funds Rate?

    The federal funds rate is the interest rate banks charge each other for overnight loans to meet their reserve requirements.

You May Also Like

Hot Definitions
  1. Risk Averse

    A description of an investor who, when faced with two investments with a similar expected return (but different risks), will ...
  2. Fixed-Charge Coverage Ratio

    A ratio that indicates a firm's ability to satisfy fixed financing expenses, such as interest and leases. It is calculated ...
  3. Efficiency Ratio

    Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios ...
  4. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  5. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  6. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
Trading Center