ACH (Automated Clearing House) are payments made where funds are pulled directly from your checking account. They are similar to paper checks in that the money is transferred in a similar fashion.
The difference is there is no need for a physical check to be cut. Instead, the money moves automatically from one account to another. ACH payments are similar to wire transfers but are quicker, simpler, and less expensive.
Because of the simplicity of ACH, and the advancement of digital payment methods, it has become more popular in recent years. There are $43 trillion in ACH payments made each year.
While there are certainly benefits of using ACH, there are also potential downfalls as well. This is especially true when ACH is the method used for B2B payments.
ACH Gives Full Access to Your Account Information
To work properly, an ACH payment must include your bank account’s full information. It is very similar to a paper check in this way. This means that vendors will have full access to your checking account when you make an ACH payment. They’ll be able to view your account and routing numbers with the payment.
The added security risks of ACH payments, compared to checks, is that this information is being sent over the internet. Whether through email, an online payment portal, or through your online banking page, your account information must be transmitted online.
While there are plenty of security measures in place to protect this information, there are also obvious potential dangers. If the websites you are using to send the payments aren’t secure, a hacker could break in and gain access to your account information.
The biggest potential for fraud, though, occurs with how the payment information is sent. The major vulnerability with ACH payments lies in the transmission of the information.
In 2019, 33% of business organizations said their ACH transactions were the subject of fraud attempts or attacks. Although this isn’t the leading payment method in this category (paper checks are), it’s still a significant number.
What’s more, ACH is the only payment method that has experienced an increase in fraud attempts/attacks over the last few years. Fraud for all other payment methods declined in that time.
Nearly a third of all ACH fraud is done or attempted through a business email compromise scheme. This occurs when a bad actor targets the employees responsible for making the payments. They try to pose as a legitimate representative of a vendor, for example and get your employee to provide ACH details to them.
The bad actor will then use that information to process a fraudulent ACH transaction that sends the money to them.
This is one aspect of paper check payments that does not exist.
ACH Mistakes and Fraud Have a Direct Effect on Your Cash on Hand
Because an ACH payment is linked directly to your bank account, any mistake that is made entering, sending, or processing the payment will pull actual money out of your account. The same goes for any successful fraud attempt.
With ACH, there is no intermediary that would protect your cash on hand. With a business credit card, for example, a mistake and/or fraud wouldn’t actually pull money out of your account. You would just have a lower available credit line.
In addition, your entire balance in your checking account is available to be tapped by any mistake or fraud. Future funds that get deposited into your account would also be available to the bad actor who has your information. It would remain this way, too, until you set up a new checking account and get all your money moved over.
As any business owner knows, there are loads of headaches that would be associated with setting up a new main checking account. This includes:
- All pending payments and deposits would have to be re-routed.
- All payroll and benefit information would have to be updated.
- All accounting systems would have to be updated.
- You’d have to deal with the bank to reclaim the money you lost.
Fraud isn’t the only way your account could be compromised with an ACH, either. A simple billing error could lead to a monumental mistake that draws money out of your account. By entering an extra zero, you could go from flush with cash to tight in a matter of seconds.2019, 81% of organizations reported they were the target of an actual or attempted payments fraud. That year marked the second highest rate since 2009, with only 2018’s 82% level being higher.
If you don’t stay on top of your accounting, you could also end up overdrawing your account with ACH payments. This could lead to payments bouncing if you don’t have enough money in your checking account to cover it. Not only would this be an embarrassing ordeal, but it could lead to vendors charging you fees for bounced payments, or forcing you to pay in advance in the future.
ACH Payments are Manual
If the goal of your business is to become more digital, safe, and automated, then ACH payments are certainly an improvement over paper checks. However, they are only a minor step up.
That’s because ACH payments have some of the same security issues as paper checks do. In addition, they have security concerns that come with sending account information over the internet.
Finally, ACH payments are still manual payment methods. You have to enter your account information every time you make a payment — or set up an automatic recurring payment if it’s the same amount on the same day every month. This requires the work of employees, whose time could be better spent doing other tasks.
Optimize your Accounts Payable
Ultimately, the best way to fully optimize your Accounts Payable department is to integrate an ePayable system. It is not only the fastest and most efficient way to make B2B payments, but it’s the safest and most secure, too.
Blue Penguin Payments can help your company make the full transition to ePayables, without the headaches that could come with trying to do it yourself. Contact them today to learn more.