Why ACH Is an Ideal Payments Choice for Modern Businesses

By all accounts, the economy is taking a turn for the worse, with inflation reaching a 40-year high in June. Naturally, during this time, most businesses are hyper-focused on reducing unnecessary CAPEX and OPEX. Companies look to cut vendor fees, adjust yearly budgets, and sometimes trim payroll, but they might not consider that the way in which they issue and receive payments can drastically reduce expenses—especially for larger organizations. If businesses haven’t already switched their accounts payable (AP) and accounts receivable (AR) to ACH, then it’s the perfect time to start.

Automated Clearing House (ACH) continues to grow as a popular payment method for businesses because of its speed and cost-efficiency, but this growth has accelerated over the past few years. According to the Federal Reserve, ACH took significant share from credit card and check payment volume during COVID-19. It has also experienced enormous growth within the B2B sector post-pandemic, accounting for $5.3 billion in payments, representing a 20.4 percent increase from 2020 to 2021. Here is what you need to know about ACH payments.

Why ACH?

ACH is a system run by the nonprofit National Automated Clearing House Association (NACHA). It serves more than 11,000 financial institutions, acting as a facilitator between bank accounts that obviates credit card networks, paper checks, wire transfers, cash, and other forms of payments. While credit and debit cards charge transaction and interchange fees proportional to the item cost, ACH simply offers a low, flat rate, making it predictable and significantly more cost-effective per transaction. Paper checks don’t incur transaction fees but add hidden labor and productivity costs.

ACH is also more secure than alternative payment methods because it passes through less intermediaries than credit card transactions and doesn’t expose banking or routing numbers like paper checks. Surprisingly, paper check fraud still poses a huge risk to businesses. The 2022 AFP Payments Fraud and Control Survey found checks were the payment method most impacted by fraud, at 66 percent. For the same reason that ACH is more secure than paper checks, it is also more efficient and reduces the risk of human error. Less intermediaries means less chance of mistakes with reporting or data breaches.

Additionally, cash flow can be an issue during economic downturns and ACH is much faster than paper checks, which helps AR departments improve productivity and reduce resources. In some cases, the process can be automated, making B2B payments much easier without the need to track and reconcile checks. Even if businesses are already using ACH for AR, they tend to forget that AP departments can find just as much value from using ACH as well. Cost savings and efficiency can exist for both inbound and outbound payments.

Preparing for the Switch to ACH

There are important points to consider before making the switch. ACH is more or less a digital check and isn't protected or guaranteed like credit card transactions. This means businesses should only select ACH providers offering robust end-to-end fraud and verification systems to mitigate the risk of fraudulent transactions. The processor should have access to the appropriate internal and external databases to ensure the transaction is legitimate and be able to monitor both businesses’ checking account activities. It’s also important to set up an automatic payment resubmission request so that in the case of an ACH return, businesses don’t need to chase remittance—a bad experience for both parties. If the ACH payment doesn’t clear at first, the system will automatically try a second time. In most cases, a second remittance request clears up any issues.

Another consideration is making sure ACH is seamlessly integrated into a business’s CRM or enterprise resource planning (ERP) software. If not, it can be disruptive to operational efficiency and impact proper reporting. If a merchant must leave their own business software to log into a financial institution’s interface for ACH, and then switch back again, there will be no record of that payment in the system.

What Companies Stand to Benefit the Most?

All businesses could benefit from the cost savings of ACH, but there are certain paper check-intensive industries like home service (e.g. lawn care, plumbing, etc.), auto repair, nonprofits, hair salons, and home medical services that could immediately see benefits of this change.

As businesses look at material ways to cut costs, they shouldn’t overlook the way they offer and receive payments. There can be significant savings in switching AR and AP departments from paper checks or credit cards to ACH including the added benefits of cybersecurity, efficiency, and a better overall experience.

Michele Shepard has more than 20 years of experience building world class sales organizations. As chief commercial officer of Paya, she focuses on developing and executing forward-thinking customer engagement strategies across sales, marketing, and customer success. Michele’s previous experience includes leading high-growth sales and business development teams as well as implementing successful go-to-market strategies at high growth vertical software companies Insurity and Vertafore. Michele also served as a senior sales leader at Gartner, focusing on tailoring sales to targeted vertical end markets.