Of all the necessary functions a business must perform each day, few are more costly or inefficient than handling paper transactions – processing, posting, printing, mailing, and tracking checks. To make matters worse, businesses then must contend with the delays, risks, and errors involved in sending and receiving checks. With paper transactions, businesses must expend significant resources just to keep cash coming in and going out.
However, at a time when money can move automatically or at will at digital speed, there is no need for businesses to deal with such mundane but demanding processes. By using electronic payments through the Automated Clearing House, that can all go away, allowing cash to flow in and out of the business more efficiently.
What is ACH and How Does it Work?
The Automated Clearing House is a vast, digital network connecting financial institutions across the country and the globe. It creates a single platform providing banks with the capacity to transfer funds to and from other banks and their customers. Banks or businesses can access the network to push or pull funds at their request with a one- to two-day settlement timeframe.
When a business accesses ACH to pay a vendor, it makes an entry into the ACH system. The amount requested is then debited from the business’s account by its bank, which then transmits the payment through the ACH network. The vendor is notified of the transfer by its bank, which then credits its bank account. The vendor receives notice of the credit, which may not be available for a day or two.
Vendors can also initiate the process by requesting that a payment be pulled from a business’s account with its authorization.
The Advantages of ACH for Businesses
Lower processing and transaction costs: Considering that businesses can spend up to $20 for a paper transaction – including preparing, printing, mailing, and tracking – processing payments through ACH can reduce transaction costs significantly.
Reduced incidences of error and fraud: A check transaction typically involves handling by several people, increasing the possibilities of error or fraud. ACH transactions can be controlled by as few as one person on each side of the transaction.
Faster payments: Transaction times are reduced by days, even weeks.
More efficient payables management: Payments can be more easily batched and scheduled to optimize cash on hand.
Automated recordkeeping: Transactions are automatically recorded, compiled, and reported. In most cases, records can be downloaded into a business’ accounting system.
Increased revenue growth opportunities: Many larger companies and government entities prefer working with partners who accept ACH payments. Younger consumers tend to prefer electronic payment options.
Other Benefits of Using ACH include
- Gain more control over your daily cash flow
- Streamline the disbursement process
- Improve cash flow forecasting
- Set up recurring payments
- Eliminate mail float
- Streamline reconciliation
Establishing an ACH Account
An ACH account can be set up in a matter of hours. The first step is to contact your bank and discuss your transaction needs, including payments, receivables, and payroll. Business banks are fully equipped to offer state-of-the-art ACH along with a full range of cash management services that can be tailored to your needs and budget.