ACH transactions allow employees to get paid instantly without needing paper checks. They also help businesses streamline accounting processes and save money on transaction fees.
For example, when you sign up for autopay with your phone company, your bank (the ODFI) sends a data file to the bank of the person paying their monthly bill (the RDFI).
This process makes direct deposits and automates payments for advances, allowances, or reimbursements.
1. Automated Payments
While consumers have long benefited from the ease and security of digital payments through a swipe, tap, or fingerprint, businesses are just beginning to adopt these same technologies. One of the first steps for companies is streamlining payroll and accounts payable processes by automating ACH payments.
What is an ACH payroll? ACH debit payments (or direct payments) are money transfers originating from a payer’s bank account and moving directly to the payee’s bank account.
To make ACH transactions, the business gives their payment details to their ODFI or RDFI (Originating Depository Financial Institution or Receiving Depository Financial Institution). The ODFI or RDFI then submits those transaction records to the ACH network through a third-party sender, such as a payroll processor.
Once the ACH file is sent to the ACH network, it can be executed immediately. Unlike with checks, there are no holidays, interruptions, or delays, and processing times are much faster. As an added benefit, ACH debit payments can be scheduled to recur automatically, which helps reduce the volume of manual processing in the office.
Lengthy check processing cycles are another reason many AP departments prioritize automated systems. Using an ACH processor can also help your company capture early payment discounts by eliminating the need to wait for mailed checks.
With a digital document management system, you can also keep meticulous records of all ACH payments and transactions—which is far more effective than keeping track of a filing cabinet full of paper documents.
2. Reduce the Risk of Fraud
The ACH network allows employees to receive their paychecks directly in their bank accounts, eliminating the need for paper checks. It’s a secure, reliable method that’s easy to use. And compared to credit card or wire transfers, it’s usually cheaper for businesses to process ACH payments.
However, ACH transactions can also be susceptible to fraud. Bad actors can use a company’s trust in these electronic payments to make unauthorized transactions, like changing payees and amounts on original checks or stealing account information.
To mitigate risk, ACH payment providers should verify the recipient’s account and routing numbers before processing payments. This helps prevent unauthorized payments made to the wrong entity or funds stolen from the payroll funding account. Additionally, providers should require a second person to confirm and release the transaction. Lastly, limiting who can change vendor account information is important by requiring requests in writing and not via email.
Combined with best practices, these steps can help reduce the risk of fraud for companies that utilize ACH to process recurring payments, including e-commerce, B2B, health-related practices, and service providers. Additionally, it’s helpful to use a technology solution that can automate the accounts payable process and streamline invoice data entry to reduce internal risks further. This is an important step for companies that want to improve their bottom line and protect their customers’ sensitive information.
3. Streamline Reporting
Streamline your payroll process with an ACH solution that automates benefits, loans, and retirement contributions deductions. Your payroll system sends data files containing information about your employees to an ODFI, which then packages and delivers them to the ACH clearinghouse. Eventually, ACH credits arrive in your employees’ bank accounts and pay them the amount they earned after deductions. This is a far faster and more efficient way to distribute paychecks than paper checks.
Using an ACH direct deposit option for your employees also makes it easy to eliminate paperwork, saving time and money for everyone involved. It’s less likely that a mistake will occur when you move from paper to electronic records, and the cost of processing an ACH payment is far lower than the price of producing, mailing, and reconciling a physical check.
An ACH processing solution can also help you streamline your record-keeping for all payments, including expense reimbursements to customers and clients. This allows you to manage reimbursements more effectively by reducing the time to receive approval and processing payments from weeks to 3 to 5 days. You can also stay on top of your financial transactions with a more transparent, centralized system that provides documentation and transaction history inside a single dashboard.
4. Increase Efficiency
While ACH is best known for its direct deposit capabilities, it can also be used to process various other electronic transactions. These may include consumer payments, non-consumer payments, or even business payments like hiring contractors or direct deposit of payroll.
An ACH payment system helps businesses avoid errors with paper checks, including lost or stolen checks. It’s faster than distributing paper checks and more secure than paying by credit card, as the transaction is conducted securely between your bank account and your employees.
In addition to reducing the risk of fraud, an ACH payroll service can help increase efficiency for your business. The system can be set up to send email notifications when a credit transaction has been made to an employee’s account, which can help reduce the burden of bookkeeping and keep your employees informed.
Conclusion
An ACH service can streamline the payment process for small businesses, from calculating expenses to submitting W-2s and 1099s and processing invoices. With the right solution, you can stay on top of a unified dashboard that keeps meticulous records of all your ACH payments and reimbursements.
This way, you can eliminate the time-consuming, manual processes of tracking and filing paperwork and cut your end-of-year expense processing times from weeks to a few days.
