Six feet of distance, an abundance of caution about high-touch surfaces, (hello, cash and checks) and unstaffed offices. The pandemic has truly upended the way that businesses of every size and industry must operate in matters ranging from the technology requirements of moving to an entirely remote work force to the basic processes of handling payments and receivables.
Yet, these cashflow processes are critical to the fundamental health of every organization. So what should a small or mid-sized business to do when their core operational activities are disrupted by stay-at-home orders and concern for the health and safety of both their staff and customers? Like much of the rest of life these days, the answer lies online.
Many businesses are moving toward Automated Clearing House (ACH) payments to manage paying vendors and receiving payments. Also known as Direct Deposit, direct pay, EFT (electronic funds transfer), or electronic check, ACH payments transfer funds electronically from one bank account to another through the Automated Clearing House network. The network ensures that even if accounts are at different financial institutions, the transfer happens smoothly and relatively quickly. They don’t require a debit card, but they do require businesses to set up permission for the connection on both sides.
The trend has been toward digital payment processing for several years, but the new circumstances of the pandemic have pushed many operations to adopt new payment and revenue channels in the interest of efficiency, organizational stability and the safety of their employees and customers.
Before the pandemic many small and medium-sized businesses (SMBs) were using checks to both pay bills and receive payments. Over the past six months that number has decreased dramatically.
If moving to ACH is an operational shift that your organization is considering, one you quickly need to make, or a move you have already made but are looking to streamline, here are a few frequently asked questions to consider.
What are the advantages and disadvantages to using ACH in your cashflow activities?
ACH has several advantages over the use of paper checks. The first and probably most important is speed. ACH payments are processed and received much more quickly than it takes a check to be drafted, signed, mailed, received, and deposited.
In addition, ACH payments don’t require a person to be physically in an office (or have physical checks) to make sure a payment is made or revenue received. This factor also supports revenue assurance – you know when a payment has been deducted from a customer’s account, even if it won’t be available in your account immediately. Such assurances and transparency are key for a small business in these difficult times.
The automation that ACH makes possible for routine payments can also reduce the time and labor that your staff is spending on mundane tasks like signing and mailing checks and manually reconciling payments.
Another valuable benefit is that ACH payments are significantly more secure that traditional paper checks. Check fraud is a very real concern no matter what industry you operate in, together with issues of checks getting to their proper destination and the sensitive information they carry on them.
The downside to ACH payments is that there is an associated cost. The fees are likely dependent on your bank or third-party payment processor, but are usually around 1% or $10 maximum per transaction. However, if you’re looking to use ACH to receive payments as well as make them, these fees are markedly less than those incurred with debit or credit card processing.
What are some of the challenges a business might face in shifting to this new system?
While actually getting the payments set up in your accounting system may be relatively straightforward, you can’t stop there. Thinking through and establishing the processes for handling electronic payments and receipts as a part of your regular accounting and money flow practices is an important part of the fiscal stewardship of your organization.
In addition, while ACH payments are markedly more secure than traditional checks, there are still security risks involved so you need to ensure that you have protocols in place to mitigate those risks. This can include working with your bank to only authorize ACH debits on specific accounts and making sure that you have the proper cybersecurity systems in place to protect both your digital infrastructure and your payment information.
What are a few key pointers to keep in mind when making this shift?
While it may be disconcerting to some to authorize a vendor to debit money from your businesses account, it really is a common, hands-free practice. In addition, if something does go wrong with a payment there are safeguards built into the system.
For example, if something goes wrong with a payment or vendor, you have the right to call your bank to dispute an authorization for a payment withdrawn from your account, possibly after investigation, and your bank will have to make you whole. In addition, you can work with your bank to set up debit filters where one vendor or multiple vendors are authorized to debit your account while others are not.
How you set up ACH payments in your accounting software is also key to ensuring that both automated and one-time payments are a seamless part of your cashflow processes. It’s also worth noting that ACH payment processes can be set up to receive donations if that is a revenue source that your organization is reliant upon. Indeed this is a shift that many nonprofits, and those that support them, are now making. Before the pandemic the growth rate of online charitable giving was holding steady in the low teens. Today, six months into the new realities of this health crisis, online giving has jumped to more than 30%.
How can ITeck’s expertise help facilitate this shift?
With our broad experience with Software as a Service (SaaS), including many different accounting platforms and software models, ITeck can help your organization set up integrated payments through ACH so that paying bills and receiving payments is a seamless part of your operation. In addition, we can help ensure that your organization has the necessary cybersecurity infrastructure in place to protect sensitive payment information on all sides.
While the new realities of operating an SMB in a post-COVID world can be daunting, we believe that this can be an opportunity to improve the operational stability of smaller organizations across every industry. The innovation in the Financial Technology (FinTech) sector is happening at warp speed but we are confident there is a solution out there to help every business meet the challenges of operating in today’s environment. If you would like to discuss the options out there, please be in touch.