ACH Payments

What are ACH payments?

Automated Clearing House (ACH) payments are a streamlined way for businesses to transfer funds electronically between bank accounts. ACH payments are an alternative to paper checks, credit card networks, wire transfers, or cash.

What is ACH?

Automated Clearing House is an electronic network for financial transactions in the United States.

ACH facilitates the transfer of funds between bank accounts so businesses can make payments and receive deposits electronically.

By understanding ACH’s functionalities, advantages, and implementation considerations, AP teams can use this electronic payment method to streamline their processes.

How ACH works.

Here are the steps for an ACH transfer.

• The sender initiates the transaction. An ACH file contains information like the recipient’s bank account details, payment amount, and authorization for the transfer.
• The sender submits the ACH file to their financial institution, which then forwards it to the ACH network for processing.
• Once received by the ACH network, the transaction undergoes a series of steps, including validation, routing, and settlement. The ACH network processes transactions in batches, typically on a daily basis.
• Once processing is complete, funds are electronically transferred from the sender’s bank account to the recipient’s bank account.

Advantages of ACH for accounts payable teams.

ACH payments carry several advantages for AP teams, including:

Cost efficiency. ACH payments are often cheaper than other payment methods like checks or wire transfers. With lower transaction fees and reduced administrative overhead, the savings can add up over time.

Faster processing. Unlike paper-based methods, ACH payments are processed electronically, for faster transaction times. This helps improve cash flow management.

Enhanced security. ACH transactions are subject to stringent security protocols and encryption standards, reducing the risk of fraud and unauthorized access. They are safer than traditional check payments.

Simplified reconciliation. ACH payments provide detailed transaction information, including payment references and remittance data. This facilitates reconciliation processes for accounts payable teams, enabling them to match payments with corresponding invoices more efficiently.

Standardize payment processes. Establish standardized procedures for initiating and processing ACH payments to ensure consistency and efficiency. Ideally, ACH payment would be made through the same platform as all other payment types.

Verify payment details. Conduct thorough validation checks on payment information to minimize errors and mitigate the risk of payment fraud.

Maintain an audit trail. Keep detailed records of ACH transactions, including payment references and remittance data, for reconciliation and auditing purposes.

Monitor transaction activity. Regularly monitor ACH transaction activity to identify any irregularities or unauthorized payments promptly.

Stay informed. Keep abreast of regulatory changes and industry developments related to ACH payments to ensure compliance and optimize payment practices.

How Airbase helps with ACH payments.

Airbase facilitates payment to all of your vendors with a U.S. bank account using ACH. Making an ACH payment with Airbase AP automation functionality follows the same intuitive process as all payment types.

You simply indicate that you are paying a bill by ACH and choose whether you will pay immediately, pay by the due date, or schedule a payment. As with all payments, the transaction syncs with the general ledger with all relevant documentation, creating an automatic audit trail.