Your organization’s payment strategy will have more room to expand when same day ACH enters the picture later this year. What will it mean for business-to-business (B2B) payments? Are there any drawbacks? Following is an overview to help Commercial Card professionals become better acquainted with what Mary Schaeffer, AP Now, describes as a big boost to the U.S. payments evolution and the first meaningful change to the ACH process in over 40 years.
Today, most ACH payments are settled the next business day. Same day ACH will give businesses, governments and consumers another option, as long as their bank/financial institution (FI) offers the service. On the receiving side of the equation, an FI will be required to accept such payments. The originating FI will pay a nominal fee of 5.2 cents per same-day transaction.
The vast majority of ACH payments (credits and debits) will be eligible for the same-day process, excluding international transactions, which are subject to OFAC screening requirements, and payments greater than $25,000.
Same day ACH, which includes the addition of two new clearing windows, will be implemented in three phases. Phase 1, for credit entries and non-monetary entries only, will occur September 23, 2016. The other two phases will take place in 2017 and 2018. For more details, access NACHA’s comprehensive same day ACH content.
Uses in the B2B Payments World
NACHA highlights same day ACH for faster payment of invoices on or after the due date, and same-day remittance of tax payments. There also could be situations in which a supplier requests payment up front, prior to completing an order; for example, a provider of an onsite service. Commercial Card payments, of course, can be a good option in these situations, but same day ACH could be another.
I envision possible use of same day ACH for end-user payments to their card issuer. If an organization wants to hang on to its money as long as possible, but still meet its contractual obligations, it might initiate a same day ACH payment on the central bill due date. On the other hand, an organization looking to further reduce its file turn for rebate maximization purposes might decide to use same day ACH payments.
Is There a Downside?
The benefits prevail, but, as with any advancement, there are some potential drawbacks. The Association for Financial Professionals (AFP) published an article last year in which some payments experts predicted an increased fraud risk. For example, same day ACH will likely generate a larger volume of payments, especially at the end of a day, with less time for FI review. This will drive ongoing security improvements.
In a different article published by American Banker, MineralTree founder and CEO BC Krishna discussed some pitfalls of ACH payments overall. He points out a different security challenge: a payer business handling extremely sensitive payment information from its supplier payees and how the payer is liable for the stored information if they suffer a data breach. His other comments center on ACH availability, such as how an FI does not necessarily extend an ACH package to every business. It might reserve ACH for its largest corporate customers with significant payment volume. He concludes, “In the end, ACH is just one potential solution to the ultimate goal of obtaining faster and more secure payments. Other payment rails such as debit, credit, electronic funds transfer, and virtual cards are in a good position to solve these challenges as well.”
Andrew Deichler, Payments Experts: Same-Day ACH Could Give Rise to Fraud, published by the AFP May 11, 2015 (create an AFP account to access).
BC Krishna, Same-Day ACH No Silver Bullet for Business Payments, published by American Banker, September 29, 2015.
Will You Utilize Same Day ACH?
To get a sense of organizations’ interest in same day ACH, as well as evaluate other payment practices, including the use of Commercial Cards, Accounts Payable Now & Tomorrow (“AP Now”) is currently conducting a short payments survey. I will be doing the analysis, so I am eager to see the responses.
Note: The survey closed February 2, after this post was published. The related webinar of preliminary results, hosted by AP Now, is February 25.
About the Author
Blog post author Lynn Larson, CPCP, is the founder of Recharged Education. With more than 15 years of Commercial Card experience, her mission is to make industry education readily accessible to all. Learn more…
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