Same-day payments have already moved from a business luxury to a means for survival and staying competitive. Amid this need, ACH (Automated Clearing House) payments remain among one of the fastest payment methods in the US – according to Nacha, in the first quarter of 2023, Same Day ACH saw volume and value increases of 20.7% and 94.7%, respectively. ACH also contributed to $128.5 trillion in non-cash payments in 2021 including card and check as well, as cited in a study released in April by The Federal Reserve.
Using ACH to pay your vendors and logistics partners carries a wide array of advantages along with a few potential challenges, both of which we will examine in this article.
ACH payments were created in the U.S. in the 1970s as a means to send money safely and conveniently between different banks. The ACH Network is a batch processing system in which banks and other financial institutions use a shared network to aggregate ACH transactions for processing.
ACH payments offer a range of advantages for international transactions, though like any electronic payment option, they carry their own share of risks. In this article, we’ll go through the pros and cons of using ACH payments to help you evaluate if they are the best option for your business.
- Reduced manual effort: Handling a payment to a vendor electronically rather than writing and posting a check in the mail is infinitely easier.
- It’s fast: ACH credits generally need to be settled within one to two days, and ACH debits can be settled by the next business day. This is faster than the time it takes to mail a check and for it to be received and processed by the recipient.
- It’s cost-effective: Consider the costs associated with printing checks, putting them in stamped envelopes, and having them delivered via couriers. These might not cost much individually, but little expenses like these can accumulate and eat into your employees’ time and your overhead.
- Setup time: To pay your bills or your vendors online will require you to create an account. This could take up to a few hours depending on the service.
- Extra Fees: Setup can often include some admin fees, and processing fees can range from $0.20 to $1.50 US dollars. There are also vendor enablement costs, which refer to the labor needed to collect and monitor vendors’ banking and routing information. Though relatively small, these fees can add up.
- Limited Reach: ACH payments are currently only available in the U.S., whereas wire transfers and credit card payments can be made across the world.
ACH payments are recognized as a relatively safe payment method. Data from Nacha shows that less than 0.03% of ACH transactions are returned as unauthorized.
ACH payments are generally safer than writing checks since you only need to enter your bank info once, whereas checks require that you write it every time. However, checks can also be stolen or lost in the mail, while ACH payments move directly from payer to recipient.
In terms of fraud protection, ACH payments are more vulnerable than credit card transactions, which won’t directly draw on operating capital even if subject to fraud. However, losses due to ACH-related fraud are protected under federal law – so long as it’s reported to the bank within 60 days.
ACH payments also hold a security advantage over wire transfers in that they aren’t instant and irreversible as many wire transfers are, which means a fraudster will have a harder time running off with your stolen funds.
Even though ACH transactions are relatively secure, there are several things businesses can do to add additional security:
- Create a secure portal for vendors to enter banking account info so no one else can gain access
- Store ACH data in encrypted servers
- Enable secure file transfer protocol (SFTP) to ensure your transaction is safe from end-to-end
- Use a credit only account for issuing ACH payments, not a debit account
- Invest in malware protection on the PCs you use to make ACH transactions
- Watch for suspicious transactions in your account that don’t come from known vendors
Waiting for payments can be challenging, especially if your business is growing quickly and you have inventories you need sitting in your warehouse. BlueX customers can now use ACH to pay their vendors and logistics providers while using our Pay-it-Later services.
Get in touch with the BlueX team about how we can provide your business with the immediate working capital you need to stay afloat and thrive.