Every year, billions of B2B payments are made with paper checks. But there is another side to the story. Check usage is in drastic decline, and has been for the past two decades. At the same time, Electronic Funds Transfer (EFT) payments are on the rise.
For small businesses, having an efficient process in place to send and receive payments online is mission-critical. That’s where ACH payments come into the picture.
What is an ACH payment?
ACH payments, or ACH transfers, are electronic bank-to-bank money transfers processed through the Automated Clearing House Network. ACH payments allow entities to securely send and receive electronic payments even if they are at different banks. Types of ACH transfers include person-to-person payments (like Venmo), business bill payments, direct deposits from employers to employees, and government benefit programs.
Learn more about ACH payments in our complete guide to ACH.
ACH for small businesses: getting used to the idea
Many small businesses are still hesitant to adopt ACH as a form of payment to their vendors, much of it due to the feeling they aren’t safe.
But although it may seem surprising, ACH is actually far safer than checks. Checks and ACH use the same financial information to process payments (routing number, account number, and payment number). Any time a small business sends a paper check, the bank data that appears on the check can potentially be exposed to whoever comes in contact with it.
On the other hand, the ACH network has security protocols set up to allow businesses to join the network and transfer money between them without seeing each other’s bank details. In this way, sensitive banking data is always protected. There are additional control mechanisms available, such as ACH positive pay, adding more security layers to an already-safe payment method.
Bottom line, there is no reason for small businesses to fear ACH payments. In fact, they are safer than checks—and that is just the tip of the iceberg. The benefits of ACH go far deeper.
8 ACH benefits for your small business
ACH has benefits for small businesses—both vendors and customers. Let’s dive into the benefits of ACH payments, from cash flow to security and more:
1. Control over your cash flow
With ACH bank transfers, you can schedule payment dates, so your small business can make automatic payments on or very close to their due date. This allows you to hold on to your cash longer. It also helps eliminate the uncertainty of when a check will be deposited and funds withdrawn. Not to mention the extra time, cost, and penalties if a check gets delayed or lost in the mail.
When you send or receive a business payment via ACH, you don’t have to wonder when or if payment will arrive. The funds are forwarded directly and quickly from the customer’s bank account to the vendor’s.
2. Save time
ACH payments can be scheduled in advance. This allows businesses to spend less time writing, sending, and tracking checks. Additionally, vendor details only need to be registered once. After that, sending recurring payments is fast and easy. Overall, ACH is a much quicker and more efficient process, especially when using an easy payments platform like Melio.
3. Low cost
ACH payments are typically less expensive than checks, wire transfers, or credit card payments. The cost of issuing a check is estimated at anywhere between $1 to $26. Domestic wires cost an average of around $26. The median cost for sending or receiving ACH payments is just $0.26-$0.5, and costs are further reduced if you have higher transaction volumes.
4. Security
ACH transactions are encrypted, and the system stores data without exposing it to the various parties involved. This is one of the most important ACH benefits for vendors as well as for businesses. Vendors can receive payments from businesses without having to worry about their bank details being seen by outsiders. And businesses can send payments without sharing their private bank details. Protecting yours and your vendors’ data should always be a priority, and ACH payments are designed to do just that.
5. Hands-free payments
During the Covid-19 pandemic, social distancing created a need for hands-free payments, disrupting existing norms and infrastructures. As people became accustomed to this fast, convenient approach, the hands-free practice became more common and popular. One of the ACH benefits for customers is that it provides this hands-free payment option, which many people today prefer and expect.
6. Ideal for recurring payments
If you need to make recurring payments (e.g. rent, lease, or a regular supplier), ACH payments can take care of routine transactions and make sure these payments are processed consistently and on time. ACH payments also allow you to receive recurring payments automatically, enabling you to better manage and predict your cash flow.
7. Going green
As a fully digital transaction, ACH payments eliminate the need for paper checks, envelopes, stamps, and of course, the carbon footprint required to transport and deliver checks. For companies who value sustainability and want to do their part to protect the environment, this is definitely another benefit of ACH.
8. Reduced risk of fraud
ACH payments provide a secure, electronic method for transferring funds, minimizing the risk of a check being forged, lost, altered, or stolen. Additionally, ACH payments are highly regulated by the U.S. government and Nacha, and incorporate verification and authorization processes, ensuring that only authorized transactions are processed. Using a payment platform like Melio reduces fraud risk even more, with added security measures on top of those in the ACH network.
Want to enjoy the benefits of ACH payments for your small business? Sign up for Melio today
Use ACH if your business has multiple business clients or vendors
If your business has only a handful of vendors, then making manual payments, whether by check, cash, or credit card, is probably not too much of a hassle. However, if your vendor list stretches a bit longer, your process can become inefficient and harder to manage.
Say you run a discount clothing store. You need to maintain a broad selection of inventory, so you periodically buy from a few dozen suppliers. In this case, ACH makes a massive difference by saving you time and money on your payments operation. Paying each supplier separately is not only time-consuming. It’s also more prone to errors and missed payments.
On the receiving end of your business (that is, getting paid by clients), you aim to shorten the amount of time you wait for payment and give clients an effective, immediate way to pay you. The less time you wait, the better your cash flow. With automated accounts payable process and ACH bank transfers, you can track due payments more easily, and spend less time chasing your clients to pay you.
Use ACH if your clients or vendors are all across the U.S.
Businesses that operate locally—with clients and vendors nearby—can probably still rely on paying and getting paid with paper checks. But if the distance between your business, customers, and suppliers is larger than that, you should consider using ACH transfers.
When your clients and vendors (or both) are scattered across the country, using checks for payments increases the lag time from when the funds are sent to when they finally arrive. Then of course, you need to deposit the checks and wait for the money to clear into your account.
Every minute your check spends traveling in the back of a mail truck or waiting to be cleared means your is affected. The lag time also makes it harder for you to make accurate projections and plan your cash flow, as there’s always an element of uncertainty as to when the checks will arrive, and how long it will take them to be deposited and processed.
On the other hand, distance within the U.S. won’t affect the ACH transfer speed. A transfer from Lewiston, Maine to Portland, Oregon takes the same amount of time as a transfer inside Lewiston itself.
Use ACH if your business model is based on subscription payments
Businesses that rely on a subscription-based payment model are familiar with the problem of passive churn. That happens when an error occurs with recurring payments and the subscription is therefore canceled. This type of involuntary churn can happen for different reasons, such as an expired debit or credit card, or the card provider declining payment for some reason.
Setting up recurring ACH payments helps mitigate the risk of involuntary churn. ACH is directly linked to a bank account and doesn’t rely on card expiration dates, lost cards, or the card issuer’s decision to block payments. You have a high level of security knowing that your subscription payments keep coming in.
We are (still) living in a paper check world
Despite the advantages of ACH payments, many small businesses are committed to vendors and suppliers who require payment in checks. Rent, utilities, insurance, and other business expenses often still gravitate towards paper.
Fortunately, smart online solutions like Melio can help small businesses manage payments efficiently and provide more freedom in vendor payment methods. Melio enables payment by ACH with a processing time of 3 days, and fast ACH for same-day payments. If your vendors insist on checks, Melio allows you to pay by credit card or ACH transfer, while the vendor recieves funds in their preferred form.
For businesses that want to take the leap and move away from checks towards digital payments and the ACH space, Melio is the solution for you.
<<Start sending ACH transfers with Melio>>
*This blog post is intended for informational purposes only and is not intended as financial advice.
**Melio does not provide legal, tax or accounting advice, and you should consult with a professional advisor before making any financial decisions.
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