Finality Of Payment

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.

BREAKING DOWN '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.