Cashbook Electronic Payments: ACH Process Explained

The subject of electronic payments and ACH payments in particular, is a topic on which Cashbook regularly receive queries and questions. From “How do I go about beginning the ACH process?” to “What information will I need to obtain for a successful vendor transaction?” - It’s an area in which a great deal of confusion and misinformation exists within the industry. Being specialists in the cash management process and having amassed a great deal of expertise in electronic payments during our 17 years of operations, we felt that the following high-level overview would dispel some of the myths out there, provide a useful overview on the subject and equip you with the basic tools needed to start your own ACH project.

Firstly, an ACH payment is simply an electronic transfer of funds from one bank account to another made through the Automated Clearing House (ACH) Network in the United States. Its popularity as a payment method continues to grow; According to the NACHA, in 2008 alone ACH payments processed totalled $18.2 Billion , which was an increase of $1.2 billion on 2007.

Whilst the incidence of ACH payments continues to flourish and grow year on year, we often hear from vendors of their reluctance to embrace this payment format due to a fear or unwillingness on the part of their customers to be paid via ACH. What needs to be remembered in these instances is that vendors can be leaders in this field and take command of their own payment terms. When equipped with the correct information and made aware of the benefits that ACH payments offer, receiving customers very quickly see the upsides to adoption. With the right information at your disposal these situations become win-win for both parties. Later in the article we’ll examine these benefits in further detail.

In order for a company to make/receive an ACH payment to/from an individual or company an established set of information and authorisation is initially required. This authorisation information must conform to the requirements of the ACH operating rules and must be either written and signed, or electronically displayed. Typically, it will take two full working days for payments to be received into the respective bank accounts. Cashbook has found that the most effective way in gathering this information is through the issuing of one of two forms:

1) Authorisation Agreement – Vendor Payments (Download Template)
This is a more formal document where the Vendor Company signs an agreement to enter a ‘Direct Deposit’ arrangement with your Company, and it also includes the Vendor Bank Account details.

OR

2) Vendor Bank Accounts Circular (Download Template)
This is an informal circular used to collate the Vendor Bank Account details required for ACH Payment Processing.

Should you wish to view either of these forms please click on the ‘download template links’ above. Within each of these documents the following information is requested. Explanation of certain fields outlined below:

Authorisation Agreement For Direct Credits

• Company Name
• Company ID Number: Unique ERP system code used to identify company
• Depository Name: Name of company/individual to whom ACH payment is to be processed.
• Branch: Specific bank branch involved for transaction
• Routing Number (ABA): Unique bank code identifying bank branch in question
• Account Number: The assigned bank account number concerning ACH transaction
• Account Number: The assigned bank account number concerning ACH transaction
• Account Type: Specify whether Checking or Savings Account
• ID Number: Unique employee number internally assigned to person authorising agreement
• Email Addresses if Remittances are required by Email

Vendor Bank Accounts Circular

• Bank
• Account Name
• Bank Transit Routing Number (ABA Number)
• Bank A/C Number
• Bank Account Type (Checking or Savings)
• Email Address(es) if Remittances are required by Email

Electronic ACH payments offer numerous advantages over the traditional manual payment methods including; significantly lower transaction costs, (NACHA factors a savings average of $1.76 per payment) faster presentation of checks into respective bank accounts as well as the freeing up of valuable human resources who no longer are faced with the manual act of writing/posting check payments. As such the use and popularity of ACH payments will continue to grow year on year.

Check Check Stock 0.10 Processing 0.24 Distribution 0.01 Cash On Hand 0.15 Lost Time 1.25 Bank Charges 0.15 Totals $1.90

Electronic Payment Prepare & Deliver Data Set 0.02 Bank Handling Charge 0.01 Transmission Charge 0.05 Return Item Charge 0.01 Lost Float 0.05     Totals $0.14

*Estimated Costs Associated with Check Payments V. ACH Payments, Source: NACHA

For example, A company issuing on average 1,000 checks per month could enjoy the following savings breakdown over a two year period: (Assuming a take-up factor of 50% per year from their customers)

	Year 1		Year 2		Year 3
Payment Type	Check	ACH	Check	ACH	Check	ACH
Quantity	1000	0	500	500	0	1000
Monthly Cost	$1,900	$0	$950	$70	$0	$140
Yearly Total	$22,800		$12,240		$1,680
Total Savings Per Year	$0		$10,560		$21,120

As illustrated above, this company issuing 1,000 checks per month could enjoy huge savings through ACH payments adoption. Many of Cashbook’s customers who have adopted our ACH modules have gone onto achieve 100% ACH conversion rates in relatively short time spans. A typical company over the course of three years could hope to enjoy savings of $21,120. This is huge savings in anyone’s book!

Should you wish to learn more about Cashbook’s ACH solutions module please visit www.cashbook.com/ach - Alternatively we’d be happy to schedule an individual WebEx within which a demonstration of the various Cashbook features can be shown.