For a millennia it seems, B2B payments have been facilitated through writing out and mailing paper checks every month to suppliers. While the rest of the world is embracing new forms of faster payments and digital payments the B2B world has been hanging out in their comfort zone doing things the old fashioned way.
There seems to be this long held belief that paying with a check is “free”. But if we know anything, we know that nothing is ever “free”, not even paying with good old fashioned cash. There are very real costs involved in paying with and accepting checks for payment. Whether you are taking into consideration employee time for manually handling bookkeeping or the physical products involved in using checks: paper, envelopes, ink, postage, estimated costs for paying with and accepting checks have varied between $4 and up to $20 per check depending on the use. And this does not consider check fraud, reduced cash flow or insufficient funds returns.
Possibly one of the reasons the movement to digital payments has been slow (but steady) is simply because people do not truly understand or know about the option and the benefits it can hold for a business owner (even though ACH payments have been utilized since the 1970’s).
But all of that is slowly beginning to change. Today, there is such an emphasis on creating payment pathways that are not only more efficient but much more cost effective and it is beginning to drive more small and medium sized businesses toward faster payment methods.
Fintech is one of the main reasons or driving force for innovation in faster payments as they strive to find faster, more efficient and more cost effective ways to transfer payments and money.
But, it is also being slowly driven by a new siege of entrepreneurs who are not bogged down by the older traditional ways of running business. Businesses of all sizes also continue to report an overall dissatisfaction with paying with and accepting checks as a form for payment, regardless of it being the most commonly used payment method for B2B payments among SMBs.
Compared to consumers, Businesses tend to have many suppliers and ongoing bills and utilities. Payment methods tend to vary based on business size and the nature of the transaction. Larger corporations can have upwards of 1000 or more suppliers that they will need to pay for services and supplies at any given time. This means that each one of those purveyors would need to be able to accept ACH as a payment acceptance option for the corporation to be able to use ACH payments as a viable option.
However, B2B companies also already enjoy a trusted business relationship with their purveyors that, many times, has been in place for years. Having a strategic relationship with suppliers can make the B2B payments method seem less complex and complete with more accuracy. And, because each business tends to have a recurring and ongoing relationship with their suppliers they only have to exchange information and set up the infrastructure one time to continue to pay and accept ACH payments over and over as the months go on.
A little history on ACH- Why are ACH payments different?
ACH stands for Automated Clearing House network. An ACH payment is a type of electronic funds transfer or EFT. Any money transfer that happens between two banks that uses this network is considered an ACH payment. NACHA, the governing body that controls the ACH network, reports that more than $51 Trillion was transferred using ACH processing in 2018.
While it is often viewed as simply an electronic version of a paper check, there are a few significant differences. Mainly the fact that an ACH is not processed like a check. Yes, while it uses bank account information and routing number there is no need for check number information and many banks actually print out a “check” and still mail it to the receiving bank for deposit, where an ACH is all done digitally.
One of the most popular uses currently for ACH transactions is for direct deposit for payroll purposes and direct payment. In fact, the first “employer” to implement a Direct Deposit payroll program was the U.S. Airforce, quickly followed by the Social Security Administration. In addition to being used to facilitate a deposit, such as payroll, ACH is also used to transfer money when making a payment. This can be through a debit process where the money is directly debited from an account, in the way is with automatic bill pay or recurring subscriptions, or ACH credit where money is sent from one account to another. So it can be viewed as either a “push” payment or a “pull” payment.
Lets take, for example, a person who wants to make a payment to their credit card. They can either go online to their bank account and set up a payment to be made to the credit card through their Bill Pay (push, or ACH credit) or they can sign in to their credit card account and set up a payment to be drafted using their bank account information (pull, or ACH debit). In the first instance they are essentially asking their bank to send a payment to the card brand and in the second they are telling the card brand it is OK to request a payment from the bank or debit the payment from their account.
ACH payments are beginning to play a big part in helping businesses of all types to meet the needs and goals of the business. Accounting firms are one business model where we have already seen a steep rise in ACH and online bill pay as a method to pay their corporate client’s invoices. And the main motivator behind these digital payments for accounting firms has been faster processing and reconciliation times. In an effort to streamline their own processes while also keeping costs down and supporting their clients they have found the fact that electronic payments are received quickly, are more cost effective and can still include a variety of formats for remittance to be of significant benefit to their accounting firms.
It is not just accounting firms that can reap the benefits of making and receiving ACH payments for B2B payments.
First and foremost, ACH is an incredibly Cost effective way to make and receive payments due to cheaper processing over paper-it costs around $4 per check to use a written check to pay each remittance. While there are fees associated with ACH transactions they are much less than the interchange fees applied when using the credit card network. When transferring a payment over the ACH network, organizations are effectively able to avoid the card networks service fees.
Electronic transactions also bring automation to reconciliation and accounting as a whole saving both time and money. Employees are no longer spending countless hours on manual processing of checks as well as entry of check ledger information. Through AP integration, businesses are able to sync with accounting software helping to reduce errors creating a much more agile accounts payable workflow.
Each payment is not only verified (no more bounced checks), but each transaction is also trackable, helping to reduce fraud and save employee resources.
ACH also affords business with faster processing times than check clearance, many even happening on the same day, allowing business owners to take advantage of last minute payments or emergency payrolls.
Don’t think you have to sacrifice security in order to accept ACH payments. ACH is one of the most secure payment forms available today. NACHA, the Electronic Payments Association and trustee of the ACH Network has strict guidelines for security in addition to being a federally regulated network. on top of the fact that many contribute to the development of ACH Best Practices, rules and regulations including, but not limited to, the Federal Reserve, Regional Payments Associations, government regulators, financial institution members, as well as other Network members.
Whether you are sending payments to your suppliers or you are accepting payments from your customers you supply, ACH payments are a cost effective and efficient option for accepting payments while also helping to streamline your accounting and reconciliation and giving business owners more control over cash flow. If you are interested in accepting ACH payments with your merchant account give us a call today for more information!