Last editedOct 20212 min read
FDP stands for Future Dated Payment and refers to a banking transaction that has been scheduled to take place at some point in the future. In simple terms, the payment is authorised to be made to a specific bank account, but an agreement is entered into between the parties that the funds in question will not be transferred – and therefore will not be available to the recipient of the transfer – until the given date.
Understanding a future dated payment
In the contemporary banking environment a future dated payment is carried out electronically, providing the permission of the relevant account holder has been granted. The party with responsibility for a credit or debit card account provides the information needed – such as sort code and account number – to the party wishing to make the future dated payment. Once the payer has the details they need, they have the right to deposit money into the account, but to take no other action regarding that account. In other words, the payer can be certain that passing on their details to facilitate a future dated payment does not represent a security risk.
FDPs for merchants
If you’re a merchant with employees’ wages to pay or recurring bills to cover, future dated payments offer an excellent means of staying on top of your accounts and making sure that all bills are paid promptly. The fact that future dated payments can be set on a one-off or recurring basis is particularly useful in this respect, as it enables a merchant to set up a future dated payment for two distinct possible scenarios:
Accounts payable as future dated payments
Let’s say a company needs a large order of stock to meet seasonal demand and the usual supplier is unable to meet the request. The company therefore sources a new supplier for a one-off bulk order, with the invoice for the goods payable in 30 days. As the business doesn’t usually deal with this particular supplier, there is a concern that they might forget to settle the invoice within 30 days. And paying it on receipt of the goods is not really an option as the income needs to be generated first. The answer to this is to set a one-off FDP for the date upon which the amount is due. In this way the company can relax in the knowledge that they don’t have to remember to send the payment, and that no money will leave their account until 30 days’ time.
Employee salary future dated payment
A retailer employs two people to work in their shop or process online orders. They work a set amount of hours each month for an agreed rate of pay. A recurring future dated payment could be set up to ensure that these employees receive their salary on time each month, as a missed salary payment is one of the things that can most severely impact the morale of employees.
The benefits of FDPs
By controlling the exact dates on which payments for recurring items such as utility bills leave their account, a merchant will be able to standardise their monthly cash flow to a large degree. By knowing when the specific amounts are due to leave a particular account, a merchant will always have the option of transferring funds from other accounts or making a deposit if insufficient funds remain when the date for the future dated payment approaches. This avoids the risk of a payment failing to go through, or the account slipping into the red and the merchant being charged overdraft fees.
We Can Help
If you’re interested in finding out more about future dated payments, or any other aspect of your business finances, then get in touch with our financial experts at GoCardless. Find out how GoCardless can help you with ad hoc payments or recurring payments.