Considering Implementing ACH for Vendors? Read This First.

Using automated clearing house (ACH) payments for vendors is a smart play for virtually any organization. Payments via ACH provides a win-win scenario for both the organization and its vendors:

• Vendors receive payments electronically which is traditionally faster than by check, and comes without transaction fees accompanied by many credit cards.
• AP departments save time and mitigate errors when compared to writing checks.

For these reasons—and a few more benefits we’ll cover in just a bit—the why for setting up ACH payments for vendors is pretty clear. The how of setting up an ACH payment system is a little trickier and has some nuances depending on your organizational structure that you will need to consider.

Luckily, that’s exactly what we’re going to cover in this post—how to set up an ACH vendor payment system. This guide is designed with AP professionals in mind and provides a comprehensive approach to strategy, tactics, and tools.

In this post we’ll provide a detailed look at how ACH payments work, the benefits of using them, and how to get started from start to finish.

How Do ACH Payments Work?

An automated clearing house payment (ACH payment) is an electronic funds transfer (EFT) sent from one bank account to another. It can be either a credit or a debit. ACH operates on a separate network than the major credit card systems like Visa, Mastercard, and American Express.

ACH payments are digital and automated, which means they are more reliable and quicker compared to the paper equivalent check.

What are the Benefits of Using ACH for Vendor Payments?

There are many benefits of ACH payments for businesses and vendors alike which we’ve covered in depth before. Here are a few that stand out:

• Convenience – Issuing ACH payments requires much less labor from the AP department than writing checks. ACH transfers typically take around 3-5 business days.
• Lower cost than credit transactions – Credit cards charge a fees from 2.5% to 5% of the value of the transaction. ACH transactions usually cost between $.20 – $1.50 per transaction.
• Works well long distance – ACH can be used to transfer money internationally. While there is no global ACH system, many countries have their own systems that will interface with ACH.
• Increased tracking capability – The bank is directly attached to the EFT which makes the accounting easier to sync—there’s no need to update two different records manually. Many accounting tools and software services can integrate with the ACH system.

If you’re sold on using ACH for vendor payments, it’s time to dive into the details.

How to Set Up ACH Payments for Vendors

Here are the steps you’ll need to take to get started with an ACH payment system for vendors. Keep in mind you don’t necessarily need to execute them in this exact order.

Align with your vendors

It’s hard to imagine a scenario where a vendor wouldn’t want to be paid via ACH, but they might exist. Therefore you should definitely consider communicating your intention to pay their invoices via ACH at some point. You can use some of the vendor benefits in this post (faster payments is always a good option) to explain how this move will be good for their business.

Once you get the the okay, you’ll just need two things from your vendor:

1. Their banking info
2. Official documentation of approval and banking info

The second piece is a safeguard that your legal team will appreciate—a simple contract confirming their acknowledgement to receive payments via ACH and a signoff on their account info.

Assess your payment needs

Before you select an ACH processor it’s super important to understand how an ACH payment needs to fit into your organization.

For instance, let’s say you’re a small business with minimal monthly B2B payments. You’re looking at ACH payments primarily because it’s faster and easier than writing checks. In this scenario, you might want to look at a standalone solution that allows you to pay invoices with ACH as its primary function.

Additionally, these types of businesses can check with their bank to see if it can take on the role of ACH processor—many can.

Mid-market companies with established accounts payable processes might be looking for a more robust solution, however. When you’re using your bank or a standalone ACH payment solution, you might be limited in terms of what processes you can automate and what systems you can integrate. And if invoice processing is a lot in terms of quantity, you’re signing up the AP team for a lot of manual labor entering vendor info into the system. This can also be a breeding ground for errors, especially when dealing with a large volume of invoices.

Therefore, it’s imperative that you’re clear on how you’d like the ACH payments to fit into your overall system.

• Need a quick way to send ACH payments with a low volume of payments? Begin evaluating standalone solutions.
• Need a more sophisticated ACH payment system that will integrate with your accounts payable and accounting workflows? Begin comparing AP platforms with ACH payments built in as part of an end-to-end solution.

Either way, once you’ve assessed your situation you’ll need to select an ACH vendor.

Select an ACH processor

Here are a few things to keep in mind when evaluating ACH processors.

Transaction fees

First off, check your list of ACH processors and determine their fee structure. Many will offer a flat rate per transaction, but this can often be negotiated based on monthly transaction volume.

NACHA certification

The National Automated Clearing House Association (NACHA) is the governing body for the ACH payments system. It provides an optional accreditation program for Third-Party Senders in the ACH Network that acts as a trust signal to your vendors. It’s a fairly rigorous process for processors and requires a $5,000 application fee, so NACHA certification is a good indication your ACH processor candidate takes their business seriously.

Functionality                              

Another area you’ll want to investigate in your ACH processor evaluation process is what their tools can do for you. At a minimum, their platform should provide you the ability to:

• Streamlines Payment Preparation: Easy access to all relevant details, invoice approval history, and supporting documents for seamless payment approvals.
• Payment Approval. Payment approvers have easy access to all the invoice documentation and history they need to approve with confidence.
• Data Ownership. Download your vendors’ payment information and take it to another payment provider if you wish. You own your data.

Each processor will have a different set of functionality, so be sure to have them walk you through their native functionality as well as their list of integrations.

Is an End-to-End Payment Platform Right for You?

As we mentioned earlier, arguably the most important feature of your ACH processor will be:

How do ACH payments fit into your financial system?

For mid-market businesses and beyond, integrating your payment system with your accounting and accounts payable systems can be a huge benefit. At Stampli, we recognized this long ago and built out the perfect compliment to our AP automation platform: Stampli Direct Pay.

The purpose of our payment solution is twofold:

1. Make payments easier for our customers
2. Provide flexibility in payment options

In order to make the payment process easier, Stampli Direct Pay offers a few features designed specifically to streamline the process:

• Easy ACH reconciliations – Batch process ACH payments with individual transaction reconciliations in your bank statement. No need to log into a separate system to reconcile.
• Use your own bank – Stampli facilitates ACH transactions from your bank account, with no need to set up a special settlement account.
• Streamlined payment runs – Easily access all relevant details and supporting documents for seamless payment approvals.
• Vendor Portal – Collect all necessary vendor info and consolidate communications into a secure, easy-to-use portal.

In terms of flexibility, we have you covered there, too! Our system allows you to send ACH payments, obviously, but also paper checks—just in case you have a handful of vendors who prefer that method. Additionally, we do not lock you into working with a particular vendor, software provider, or payment type—we have an agnostic approach to payments.

But if you’re so inclined, we’d like to show you how pairing Direct Pay with our award-winning AP automation platform can streamline your vendor payments.

Schedule a demo of Stampli today!