Want to know more about Digital Payments?
All you need to know to make the switch to digital payments.
Automated Clearing House (ACH) payments allow for the transfer of funds between participating financial institutions in the US. They're inexpensive for businesses to process and they allow for greater automation of AR processes.
ACH payments are gaining traction as a digital payment method in business-to-business (B2B) circles for several reasons, including security and ease-of-use.
One big factor is that more finance teams are embracing accounts receivable (AR) automation, which makes it easier for businesses to accept ACH payments. A survey of 400 CFOs points to this, with 68% of respondents saying their digitization efforts due to COVID-19 have allowed them to increase their use of ACH payments.
But while many businesses are turning towards digital payments in their business dealings, there are still many B2B buyers that prefer to cut their suppliers a check.
In this blog, we’ll explain why accepting ACH payments is beneficial for suppliers and provide tips for persuading customers to pay by ACH.
We'll cover the following:
ACH stands for Automated Clearing House. ACH payments are a form of electronic payment available in the United States that allows for the transfer of funds between participating financial institutions.
These payments are sometimes called “direct payments” and are generally considered to be one of the most secure forms of payment available today. ACH transactions are processed either as a credit (initiated by the payer, where funds are deposited into the payee’s bank account) or a debit (initiated by the payee, where funds are withdrawn from a payer’s bank account).
As consumers, we typically use ACH payments when we sign up for automatic billing without a credit card. If you live in the US and pay your electricity bill, rent, or car insurance through a pre-authorized debit, you’re likely using ACH.
For businesses, this payment method is less ubiquitous, although growing in popularity.
For a customer to be able to pay by ACH, they’ll first need a bank account that supports ACH transactions.
For an ACH debit (where funds are pulled from their bank account), customers will need to provide their supplier with the account number, routing number, and account type for that bank account.
There are several reasons why it’s in suppliers’ best interest to pivot away from accepting checks and start accepting ACH payments.
Check forgery is only getting easier as technology advances. Anyone with a computer, scanner, printer, and basic photo editing ability can manipulate or create checks to use for their own purposes. One fraudster with access to a check you’ve mailed can wreak havoc on your business, leaving you to deal with the fallout.
As of 2019, in the US, it costs anywhere from $1 to $26 to issue a paper check. At the same time, Bank of America estimates that it costs between $4 and $20 to process that check, with the average hovering somewhere around $6. These costs involve both physical expenses and time spent by accounting staff members.
It shouldn’t be surprising to learn that manual payment processes require more human labor hours than digital ones. Facilitating paper checks wastes time on both ends of a transaction—buyers’ accounts payable (AP) departments spend time preparing and mailing checks, and accounts receivable teams have to wait several days or more (in the event of mail delays) for the checks to arrive.
Because paper checks are one-time-use and must be destroyed within 90 days of being cashed, this creates a lot of paper waste. While the amount of paper wasted on a single check may seem insignificant, when you consider the vast amount of checks businesses send and receive every day, it’s an undue source of stress on the environment that can be entirely avoided with digital payments.
All you need to know to make the switch to digital payments.
For suppliers looking to eliminate checks from their accounts receivable processes, ACH is top of mind for many of them.
By accepting ACH payments, you benefit from:
With cybercrime and internet safety a growing concern for businesses, avoiding payment fraud should be a top priority. The most secure payment methods available today are, in order, ACH payments, virtual cards, and credit cards.
The main reason ach transactions are so secure is that they go through a clearinghouse that is designed to keep account numbers confidential. This clearinghouse also guarantees a 60-day recovery period should fraud or error occur. While no payment method is 100% secure, ACH transactions offer more safety measures than other options.
Our working world has changed dramatically over the past few years, and remote work is going to stick around in some shape or form indefinitely. Having accounting staff work from home has exposed just how flawed checks are as businesses’ primary payment method and given all of us another reason to embrace ACH payments.
When customers can pay invoices digitally, there’s no need to physically go to the office to retrieve paper checks or manage lockboxes. Instead, everything can be done from a home office with access to company accounting software.
As mentioned above, paper checks are expensive both to issue and to process. ACH payments, on the other hand, are one of the more affordable payment options for businesses.
They’re not subject to the same types of fees as wire transfers—typically ACH payment processing costs an average of about $0.29 per transaction. They also present an advantage over credit card payments, which average 2% processing fees for every transaction.
When you save money on payment processing, you can pass on the savings to your customers. If getting customers to adopt digital payments is a particularly important priority for your business, you might even consider offering adiscount to customers who pay by ACH transfer.
Most of your customers who pay by check have probably had the unfortunate experience of a check getting lost in the mail, leading to late payments. With ACH payments, this is never an issue.
ACH transactions are aggregated and processed in batches, typically three times each business day. It takes an average of one to three business days for an ACH transfer to be settled, giving AR teams greater confidence in when they can expect to receive a payment.
Though the consumer marketplace has largely abandoned paper checks, they remain one of the most common payment methods for B2B transactions. A 2020 report found that more than 80% of B2B payments still involved paper checks.
Some businesses prefer checks because they like the paper trail they create. For others, internal systems and policies call for paper checks, leading to a “that’s how we’ve always done it” line of reasoning. For others still, a lack of standardization across vendors causes them to put off the transition to digital payments.
Buyers who prefer analog payment methods should be challenged on this point—in some cases, they might simply not be aware of the benefits of transitioning to digital payments.
When businesses choose to continue with legacy payment methods simply because they haven’t considered all their options, they miss out on time and cost savings in time.
Here are some tips and talking points to help you encourage customers to embrace paying by ACH.
It’s much easier for customers to make recurring payments with ACH than it is with paper checks. An AR automation platform that supports you in accepting ACH payments can make it easy for customers to input their payment details and save them in a digital wallet for future payments (whether they go out on an automated basis or not).
When looking to get more of your customers to pay by ACH, be sure to highlight the convenience it affords for recurring payments. When you collect payments through an online platform like Versapay, customers will be sure to appreciate the fact that they can make payments any time of the day and week. No need for them to work around their bank’s hours.
One of the simplest ways to get new customers to pay by ACH is to include it as part of your onboarding process. Consider writing it into new contracts as your standard form of payment.
When customers are making a payment, they are typically paying from an invoice. You might also consider adding ACH payment instructions on each invoice.
For customers who are more digital-averse, transitioning completely to electronic payments may be a big change. Instead of requiring customers to pay online from the get-go, consider having them start by simply receiving their invoices and supporting statements electronically.
Once they get comfortable receiving invoices in this format, it may be easier to get them to embrace paying online too. This is made even easier if you’re working with a technology provider that can support both your invoice delivery and ACH payment processing.
Versapay lets you process customer payments from multiple sources, including ACH. When it comes to matching ACH payments with their associated remittance information, we have tools to help you do that too.
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