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SMB tips: Not all ACH payment providers are created equal

Many small business owners have already discovered the convenience, reliability, and efficiency of making and receiving payments via ACH, with 2018 being the first year the number of ACH transactions in the United States exceeded the number of check payments.

2021 has also proven to be record-breaking: the total value of ACH payments in the first quarter of 2021 was $17.3 trillion, reflecting a 19% increase from a year earlier. If that wasn’t enough, in March ACH volume hit 2.7 billion payments, the largest monthly volume in ACH Network history.

With ACH becoming the prominent method to move money, businesses are on the lookout for the best business-to-business (B2B) ACH service for their bill pay operation.

What are B2B ACH transfers?

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

Businesses can use ACH to make B2B payments to each other even if their accounts are at different banks.

The funds move from the payor’s bank to an Automated Clearing House network, and, pending the clearing house’s approval, they are then deposited into the recipient’s bank account.

B2B ACH transfers are cheaper, faster, and more reliable than paper checks. To learn more about the advantages of ACH transfer over paper checks, read this comprehensive article.

If you only have a few transfers to make a month, you can use your bank app. But banks are not the only service providers, and as the volume of your transactions grows, you may want to consider other options that will make life easier for you, cost less, and help in managing your payments operations.

Here are some considerations to take into account when choosing your ACH service:

The cost of ACH payments

Some financial institutions and most service providers charge fees for ACH transactions. Fees may vary, depending on the bank or service provider, whether you’re on the sending or receiving end and if you need to make an expedited payment. 

Many banks charge around $3 per transaction. If you’re only making a couple of transactions a month, the fees are less significant, but as the transaction volume increases, they add up. Some service providers charge subscription fees, which can reach $40 a month – so that’s also something to consider.

ACH payments normally take 3 days to process. If for some reason you need to expedite your payment and use a same/next day ACH, banks and certain service providers may charge up to $30 per transaction, regardless of the amount. Others may charge a percentage of the transaction. Check the availability and price of the expedited payment options when choosing your service provider.

When it comes to fees, the differences between service providers can amount to hundreds, and even thousands of dollars a year, depending on your transaction volume. So, make sure to compare the different services in terms of cost, before making your decision.  

Just putting it out there: Melio charges no subscription fees and offers standard ACH transfers for free. For expedited ACH, you’ll be charged a 1% fee (up to $30 per transaction) and if you send the payment by 2 p.m. (ET) it will arrive in your vendor’s bank account on the same day.

Additional payment options

Some vendors still insist on getting paid with checks. Maintaining two separate payment procedures – paying some vendors with ACH and others by paper checks – is a logistical and accounting challenge.

So, what can you do? If your bank is your service provider, you probably can’t merge the two tracks. Most ACH service providers will also limit you to ACH only.

However, there are service providers that offer more payment options, including decoupling the payment track from the way vendors receive funds. These services allow you to pay with ACH, and your vendors can receive a paper check. Also, look for even more payment options such as paying bills via debit and credit card, even if they‘re not accepted by the vendor.

Choice is everything, and a malleable solution will afford you the flexibility to better control float and cash flow.

Effective integration with your accounting software

Integration with your accounting software (such as QuickBooks) is an important aspect of time management. The advantage of ACH payments over other methods is that they’re digitally recorded with all the relevant financial information. So why should you have to register that information a second time into your accounting software? That is why it’s important that your ACH service provider offers seamless integration with leading accounting software tools.

Effective user interface and approval workflow designed for businesses

Business owners often have more than one individual involved in the payment process: it could be an accountant, bookkeeper, or a member of your team.

You want to be able to add additional users and set up approval levels at no added cost, so you enable other individuals to access and manage the payments, while still having oversight and control over their actions. Bank interfaces usually don’t provide this functionality.

On the other hand, some service providers offering approval levels are far too complicated because they have designed their interfaces with large organizations in mind. They also charge added fees for every additional user.

Find the service provider who provides the right balance between simplicity and control, and offers this balance with no added cost.

Differentiating ACH payments services: conclusion

There are stark differences in cost, reliability, and features between the different ACH service providers out there. These differences have a direct impact on your business’s expenses, and on its success and growth. That is why you should conduct a thorough comparison, to ensure you make the right choice, based on the criteria that are most relevant for you.

*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.