Making and accepting payments is rarely as simple as it seems. Payments, whether incoming or outgoing, may be slow, susceptible to fraud or just difficult to execute. Usually, paper is the culprit.
The good news is the Automated Clearing House (ACH) network is a pervasive paperless problem solver. ACH is an online network for quickly and securely moving money electronically between your corporate bank account and other bank accounts within the United States. Picture the great American racetrack for moving money around.
We’re going to explain here seven of the biggest payment problems ACH can solve to help your business be more efficient and drive growth.
Table of Contents
Problem 1: Remote Working Constraints
Since early 2020, businesses have made a massive paradigm shift towards remote working. By the millions, employees left their offices and set up shop at home.
That’s a challenge on a number of fronts. For example, paper payments weren’t as easy to make with so many people not in the office where the paper checks were printed and signed.
But despite the upheaval, financial transactions firing through electronic online systems flowed smoothly. One big reason is the ACH network.
“The electronic payments system infrastructure operated normally at a time when few things were normal,” said Jane Larimer, president and CEO of the National Automated Clearing House Association (Nacha). “While a shift to electronic payments was underway well before the pandemic, it accelerated dramatically after lockdowns began last March. All of the changes and turmoil could have upended America’s payment system. They didn’t.”
During the pandemic, the ACH processed two rounds of Economic Impact Payments, hundreds of millions made by direct deposit.
Problem 2: Slow Payments
When your company pays vendors and suppliers slowly it strains relationships. You risk losing trust and business. So fast, on-time payments are, quite simply, good for business.
But when you use paper checks, you’re bound to make mistakes and therefore delay payment.
The answer to this problem is to use ACH. What’s especially appealing is your business can make same-day payments to vendors.
“Same-day ACH set off the whole evolution of faster payments,” said Lisa Coffey, chief innovation officer with Corporate America Credit Union during an ACH Network Video. “Financial payment institutions began to realize the benefits of that liquidity earlier on both for the incoming and outgoing items and on the returns.”
ACH transfers are faster than paying by paper check for several reasons, including:
- they don’t get held up by the time it takes to mail a check;
- they can’t be lost; and
- they don’t have to be manually entered.
Infographic: 4Q 2020 ACH Network Volume Totals
Nacha details the recent incredible growth of the ACH market in this infographic. Click the image to download.
Problem 3: Strained Relationships with Employees and Customers
ACH excels at paying employees on time. Employers can set up arrangements with their banks to automatically pay each of their employees on paydays. No more cutting paper checks. No more employees asking employers why they didn’t get paid.
ACH handles this process routinely and reliably so businesses can focus on more strategic projects such as how to grow their revenues while controlling expenses.
The same ACH benefit applies to paying your customers. You can set up recurring monthly payments to your corporate vendors using ACH payments.
No more having to remember which vendor gets paid on which day of the month. Just give that information to your bank once, and they’ll handle the repetitive transactions.
Problem 4: High Costs to Make Payments
When evaluating forms of payment, business owners will often make a comparison between the costs associated with ACH vs wire transfer. Wire transfers can cost both for the individual who sent it and the recipient. Many financial institutions charge $10 to $35 dollars to send, and smaller institutions may charge a fee to receive a wire transfer. On the high end, those costs can add up to about $55 when combining all fees, and international transfers can cost even more.
Some ACH payment providers charge a flat fee ranging from $0.20 to $1.50 per transaction, according to Merchant Maverick, a comparison website that reviews small business software and services. Businesses may also have to pay a separate fee in the range of $5-to-$30 per month just for using ACH. There are other potential charges such as return fees ($2-$5 per return), reversal/chargeback fees ($5-$25 per instance) and batch fees of less than $1.00.
Here’s something else you won’t have to think anymore if you use ACH: Paying a heavy price to make payments. Vericheck lays out the details:
“ACH transactions are typically a much less expensive payment option than credit cards or paper checks. The cost associated with processing a credit card payment can range between 2 percent and 5 percent per transaction. Issuing a paper check is approximately $3-$5 per transaction when calculating printing, postage and personnel cost. An ACH payment typically costs a business less than a dollar per transaction depending on the volume of transactions and the perceived risk.”
Problem 5: Limited Payment Options
Writing checks is a rather inflexible process. It may be tough to find time during your busy workday to go to the post office and mail paper checks to vendors. ACH provides a more flexible system.
Two examples stand out. One is the flexibility to make ACH payments at times convenient for you; the second is the ability to split up funds from your paycheck into different accounts.
Let’s get into the timing of ACH payments first.
Nacha has extended by two hours, until 4:45 p.m. ET, the times when same-day payments can be submitted to the ACH network. This has proven especially valuable to financial institutions and their customers in the Western Time Zones of the U.S.
Now let’s explore a second key flexibility benefit of ACH. It directs a fixed amount or portion of an employee’s pay into a savings or investment account. This ability helps more in supporting your employee’s financial health than simply mailing them a paper check every two weeks.
Problem 6: Vulnerable Payments
It’s not a secret but worth repeating: Paper checks are vulnerable to fraud. They pass through several peoples’ hands in the financial ecosystem. Along the way one of those people could be a fraudster and steal information on those checks and take money from your company or use the sensitive information for some other purpose that disrupts your business.
You don’t have to worry about all this if you use the ACH network. There are two security problems consumers are especially concerned about that ACH helps solve: financial and privacy losses.
Not only are ACH transactions programmed, so is the entire financial network. Protections get installed at each transaction stage to prevent human mistakes or fraudulent attacks.
Problem 7: Poor Payment Visibility
Think about this situation: You send a paper check to pay a vendor. Do you know when it arrived? Can you check to find out or see if there are any snafus holding up the payment?
It’s not easy – and often impossible – to find these things out.
Fortunately, ACH takes care of this for you. If you want to know when your bank sent you payment, you can quickly check your bank account and find out. If the payment gets rejected for some reason, you’ll find that out quickly.
ACH also excels at letting consumers know about the start of the transaction and when the funds left the account.
Final thoughts
Your payment problems can be dramatically reduced by climbing aboard the ACH network. It’s where just about everybody in finance congregates in one way or another.
Check out these numbers: In last year’s fourth quarter, same-day ACH had 96.7 million payments – a growth rate of 35.7 percent compared with the fourth quarter of 2019, notes an Nacha report.
That kind of growth means a lot of payment problems have been solved effectively. Your business can take advantage of these benefits too and be well on its way to a productive 2021 and beyond.
