Last September, the regulatory body of ACH (known as NACHA) began the first phase of a 3-phase rollout of same-day ACH payments. Once finalized, this rollout will have a massive impact on businesses across the U.S.
NACHA and the Automated Clearing House (ACH) have been around for roughly 40 years, and the network facilitated the transfer of upwards of $43 trillion in 2016. Until the introduction of same-day ACH payments, transactions were generally available within 3-5 business days. That’s still a relatively fast turnaround time, but the rise of instantaneous credit card transactions and payment platforms like PayPal make it seem slow in comparison.
Related: A Beginner’s Guide to ACH Payments
Same-day ACH payments will drastically speed up fund availability once it is fully implemented. Phase 1 of the rollout took place in September of 2016, and Phase 2 is set to launch on September 15, 2017. Here’s the schedule for the 3 phases:
Phase 1 - launched September 2016
- Payers can “push” payments, known as credits, through same-day ACH
- Financial institutions are required to receive same-day ACH payments, but not initiate them
- Financial institutions determine when funds are available
Phase 2 - launching September 2017
- Payers can “push” payments, known as credits, through same-day ACH
- Payees can “pull” payments, known as debits, through same-day ACH
- Financial institutions are required to receive same-day ACH payments, but not initiate them
- Financial institutions determine when funds are available
Phase 3 - launching March 2018
- Credits and debits available through same-day ACH
- Financial institutions are required to receive same-day ACH payments, but not initiate them
- Financial institutions are required to make funds same-day ACH funds available by 5 pm local time
Even though financial institutions are not required to initiate same-day ACH payments, 92% of them plan to do so starting with the launch of phase 2, according to NACHA CEO Jan Estep.
So how will same-day ACH impact a business’s cash flow? Phase 1 allowed businesses to push funds out through same-day ACH, if their bank was an originating institution. This was the beginning of more flexibility with ACH, and it started with the ability to push funds out at the last possible minute. Phase 2, launching in a couple weeks, allows businesses to pull funds through same-day ACH - the key to faster customer payments. Phase 3 ties them both together, in that it requires financial institutions to make funds available the same day they were transferred.
Here are a few ways these 3 phases can provide more financial flexibility:
Keep your cash longer.
Think about all payments your business has to make, including payroll, rent, fees for business tools, corporate credit card statements, and many others. With what’s known as “Classic ACH”, you’d have to schedule these payments a few days in advance. Same-day ACH allows you to make those payments much later, keeping your cash in the bank until you absolutely have to part with it. Waiting a couple days to send funds might mean you receive a large customer payment, avoiding late fees in the process. Or you could have employees who submit hours to you in a very short timeframe. Vendors might be open to discounts for same-day payments, thus reducing your costs. It’s up to you to brainstorm all the ways keeping cash longer might help your business.
Serve customers faster.
Now consider all the different types of products and services you have and how customers pay for them. Today, you can pull a Classic ACH payment from a customer, but it generally takes a couple days to process. That probably means customers are waiting a couple days for your products and services if they use ACH, so they might opt for faster payment methods instead. With the ability to pull same-day payments from customers, you’ll receive cash faster and can start the clock sooner.
Resolve errors more quickly.
Let’s say a customer makes a payment and then receives a defective product, or is unhappy with service. With same-day ACH, you can quickly push a refund back to them much more quickly. And that goes for any type of emergency correction - changes or corrections to payroll or vendor payments, for example.
So what’s next?
Of course, there are a couple of caveats to same-day ACH payments. Reach out to your bank first to see if they originate same-day ACH, and what fees they charge for it. If you have a merchant account, check with your merchant account provider and ask the same questions.
And remember that same-day ACH does not cover transactions over $25,000 or any transactions with the U.S. Federal Government. So if either of those scenarios is the overwhelming majority of your business, consider other options.
Given that same-day ACH payments are only available in push format right now, the benefits are limited. Now that pull payments will become available with Phase 2, it’s worth a look.
Start by assessing all of your business transactions. What are they, how many are there and with what frequency? What percentage are push and pull? What payment methods do they use today? How many currently use Classic ACH?
Then look at some data on your business. What have you paid in late fees in the last year? What is your average days sales outstanding (DSO)? Can you gauge customer attrition based on lack of faster payments?
These questions are just starters - you’ll need to customize based on your unique business to understand which transactions might be a fit for same-day ACH.
Contact your bank. Now that you have your transaction analysis, reach out to your bank and merchant account provider (if applicable) so you know the fees. Compare them to fees you’re currently paying for other fast payment methods.
Determine your risk. Think about the quality controls you have in place today for both pushing and pulling payments. What’s your error rate currently? What could you do to decrease that error rate? Are there additional controls you could put in place to reduce the risk of errors with same-day ACH? These questions will help you decide if your business is ready.
The implementation of same-day ACH payments will bring sweeping change to the payments space. With 3 phases over about 18 months, it’s quite a complex beast. Same-day ACH payments can provide benefits for any business - as long as you do your research and understand all the inputs. For more details, be sure to review NACHA’s website and the Same Day ACH for Business guide.
