Why ACH Reigns Supreme for B2B Commerce | Paya

For B2B businesses, streamlining operations and effectively controlling costs have always been paramount to profitability. For this reason, ACH payments have been particularly popular in manufacturing, distribution, and the like. In this article, we’ll explore the top five reasons ACH matters and why you should put it to use in your business.

Business-to-business (B2B) accounts receivable (AR) and accounts payable (AP) departments have long utilized Automated Clearing House (ACH) payments for their convenience, speed, and cost-efficiency. According to a study by the Federal Reserve, as a result of the COVID-19 pandemic and the subsequent increase in remote banking, ACH has gained even more share over credit cards and paper checks.

In 2021, ACH payment volume increased by 8.7% over the previous year. After the onset of the pandemic, ACH experienced tremendous growth in the B2B sector with 5.3 billion payments, an increase of 20.4%, accelerating the switch to ACH, according to Nacha. How does ACH differ from other payment methods and why should you care about it? We'll give you the insider's view so you can make the right AR department decisions.

A quick background on ACH

The National Automated Clearing House Association (Nacha), a non-profit association, runs the electronic funds transfer system that serves more than 11,000 financial institutions. ACH facilitates money transfers between bank accounts without cash, paper checks, wire transfers, or credit card networks. What makes ACH so valuable and unique to financial institutions is the ability to push and pull funds between accounts.

In addition to its B2B commerce applications, ACH is also used for payroll and direct deposits, bill payments, and other transactions in the consumer sectors.

Check out Why Manufacturers Need Simple, Integrated Payment Acceptance

How ACH Works

ACH is comparable to digital bulk mail in that each transaction contains a message. Transactions are bundled by the Originating Depository Financial Institution (ODFI) making the request into batches and then passed into the network. From there, the network transfers these messages onto the Receiving Depository Financial Institution (RDFI) at one of five daily intervals.

This common use case describes the sequence:

1. AR department digitally invoices customers for goods.
2. The customer’s AP department authorizes the AR department to initiate a payment.
3. The OFDI debits the customer’s account and sends ACH files to the ACH network.
4. The ACH network transmits files to the RDFI, who processes the payment.
5. After funds clear, AR department receives the deposit.

This process takes anywhere from hours to days, start to finish.

ACH Terms to Understand

ACH Credits: Like a payroll direct deposit, this push of funds goes from the originator’s account at the ODFI to receiver’s accounts.

ACH Debits: Funds are pulled from the receiver’s account at the RDFI to an originator's ODFI. Making a vendor payment for a monthly service subscription is an example.

Originator: The initiator of transactions obtains authorization from the receiver to transact (make a payment) against their account.

Receiver: The recipient of payment who has authorized an originator to initiate an ACH with the RDFI.

Same-day ACH: After 2021, there are now five daily processing windows making same-day credit transactions possible. Note: Same-day debit is not supported.

Benefits for AR Departments

Reduce costs: Payment acceptance costs are lower with ACH payments compared to paper checks, credit cards, and debit cards. Credit and debit cards are subject to transaction and discount fees (interchange), which are typically a percentage of the total transaction plus a flat fee. ACH payments, however, are assessed at a low flat rate regardless of ticket size. How about paper checks? The processing costs of paper checks aren't a factor, but AR departments should not overlook the labor costs and lost productivity associated with this payment method.

Alleviate fraud risk: In recent years, paper check fraud attempts have spiked 43%, making them the most vulnerable payment method. Payments made using ACH are far more secure, since they are not handled by multiple parties and don't contain sensitive data like account and routing numbers.

Improve efficiency: Reconciling payment data manually with your ERP is inefficient, creates an opportunity for human error, and can lead to inaccurate reporting and costly data breaches. With ACH, AR departments can streamline operations, reduce administrative costs, and improve productivity by eliminating manual processes and inconvenient bank trips.

Accelerate funding: The digital ACH system accelerates deposit speeds compared to paper checks, which are delivered through the mail. For customers, this offers the convenience of paying with a business checking account while improving cash flow.

A Better Customer Experience: AP departments can remit payments and, in some cases, automate the process for effortless B2B payments with the click of a button. Physical checks can be eliminated from AP departments, allowing them to focus on more strategic tasks instead of cutting, tracking, and reconciling checks. Making it easy for customers to pay and providing remittance options tailored to their needs is crucial to creating loyalty and attracting new revenue.

Take the next step and learn more!

ECI’s NET1 delivers superior payment processing outcomes with the most extensive ACH programs in the industry, and is fully integrated with most ECI business management software solutions.

Not yet accepting ACH? What are you waiting for? Reach out to your ECI NET1 representative today—or read more about how NET1 integrates with your business management software.