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. Federal Reserve System - FRS

    The central bank of the United States. The Fed, as it is commonly ...
  2. Automated Clearing House - ACH

    An electronic funds-transfer system run by the National Automated ...
  3. Electronic Payments Network - EPN

    An electronic automated clearing house (ACH) that serves as the ...
  4. Credit Card Authorized User

    Definition of an authorized user of a credit card.
  5. Gold IRA

    Definition of Gold IRA
  6. Interest Rate Index

    An index that is based on the interest rate of a financial instrument ...
Related Articles
  1. The Federal Reserve
    Economics

    The Federal Reserve

  2. Inside National Payment Systems
    Economics

    Inside National Payment Systems

  3. Get To Know The Major Central Banks
    Forex Education

    Get To Know The Major Central Banks

  4. Demystification Of Bank Accounts
    Options & Futures

    Demystification Of Bank Accounts

comments powered by Disqus
Hot Definitions
  1. Ghosting

    An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. ...
  2. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  3. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  4. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  5. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  6. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
Trading Center