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Can your business benefit from ACH payments?

Gilad Idisis
Published at | Updated:

If you’re researching which bill pay options are the best fit for your business operation, you’ve probably considered using ACH transfers to pay vendors and get paid by business clients.

By the end of this article, you’ll know if and what your business has to gain from opting to ACH over other payment methods (like checks).

But first – what are ACH transfers? 

ACH is a way to transfer money electronically from one bank account to another through the Automated Clearing House network. The network includes the Federal Reserve and is managed by the National Automated Clearing House Association (NACHA).

When you make an ACH payment, the money is moved from your bank account to an Automated Clearing House network, and pending their approval, it’s deposited into the recipient’s bank account.

The numbers show that businesses are increasingly choosing ACH over traditional methods like checks. According to NACHA, over the past decade, ACH transactions between businesses increased in volume from $22.4 trillion in 2011 to $41.7 trillion in 2020.

This is a 135% increase in Q1 2021, partly because of COVID-19. ACH continued to grow steadily over Q2 and Q3, so we can safely say that ACH is the rockstar of online money transfers.

ACH transfers are a fast and secure way to pay your business bills. They usually take up to three business days to process, and some providers offer faster processing at an extra charge. It’s also relatively cheap, and the charge per transaction is usually no more than a few dollars. You can even find service providers that offer ACH transfers for free. Another advantage of ACH is that you can easily set recurring and multiple payments.

Use ACH if your business has multiple business clients or vendors

If your business has only a handful of vendors, you can pay them manually – check, envelope, and all. You can personally lick each and every stamp, which can be a very meditative experience. It gets trickier and more inefficient, though, when you need to pay more than a handful of vendors.

Say you run a boutique clothing store, and because you need to keep a broad selection, you have to make purchases from tens of 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 business clients), your aim is to shorten the amount of time you wait for your payment and give clients an effective, immediate way to pay you. The less time you wait, the better your cash flow gets. 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 – meaning, where clients and vendors are nearby – can still rely on paying and getting paid with paper checks. But as the distance between your business and your clients and vendors grows, you should consider using ACH transfers.

When your clients and vendors (or both) are scattered across the country, making physical payments (meaning checks) increases the lag time from when the payment is sent to when it finally arrives.

Every minute your check spends traveling in the back of a mail truck means your cash flow 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 be deposited.

On the other hand, distance and state or city lines within the U.S. borders don’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 business model are painfully familiar with the problem of involuntary churn: that is when a client stops paying their subscription fees. Involuntary churn can happen for different reasons: a client’s debit or credit card expired and they forgot to update it, or their card provider declined payment for some reason.

Setting up recurring ACH payments helps you 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.

Use ACH to accept claim payments for your medical/dental practice 

Small clinics that don’t have the personnel to spare on administrative work can streamline their claim payments operation and cut costs dramatically with ACH.

To accommodate HIPAA-compliant transactions between health plans and service providers, Nacha and the healthcare industry created the Healthcare Electronic Funds Transfer (EFT) standard: the required claim-related information travels with the payment on the ACH Network. This, in turn, helps simplify accounting procedures and save administrative costs for medical practices.

As to the effectiveness of ACH in the industries, the numbers speak for themselves: According to NACHA, 37.4 million healthcare claim payments were made to providers by ACH in March 2021, hitting an all-time high in a single month, with an increase of 19.3% over March 2020. The value of those payments, more than $171.3 billion, is up 13% from a year earlier.

Just one more thing

Once you’ve decided to move your payment operations in part or in full to ACH, your next step should be choosing a reliable ACH service provider. Not all ACH providers are equal, and there are significant differences between them in fees, the comfort of use, support, and additional features. Make sure you do your research before choosing an ACH provider.

*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.