The good news is that Same Day ACH is on the way, but experts continue to discuss how the initiative will impact corporate payments, if at all.
At the center of many of these discussions is the issue of ACH underwriting, which sees FIs establish how long it takes for funds to actually settle into an account.
“Even though the short same-day ACH settlement windows will reduce credit risk, financial institutions will likely want to continue putting businesses through a full ACH underwriting process,” wrote MineralTree CEO BC Krishna in an article in 2015 for American Banker on the potential impact of Same Day ACH on B2B payments. “This involves a complex application and lengthy reviews that at the very least are an annoyance for banks and their customers.”
But businesses, especially suppliers faced with lengthy payment terms from corporate customers, continue to press for faster transactions. According to Anna Maiolo, COO of accounting and payroll company FINSYNC, suppliers are looking at ACH and card payments for that speed.
FINSYNC already supports business acceptance of invoice payments via ACH and cards and recently enhanced those capabilities through a just-announced partnership with Worldpay. Maiolo spoke with PYMNTS about why businesses need that accelerated cash flow and how data is imperative for money to move more quickly between businesses.
“Whenever anyone signs up for ACH processing with their bank, or credit card processing, one of the components that defines how fast their money will move is the risk involved in that transaction,” Maiolo explained of the underwriting process necessary to onboard a corporate customer to these payment rails. “The company’s stability, ability to cover insufficient funds and chargebacks are taken into account. Financial institutions are supposed to go through each company’s financials to determine a risk tolerance level and holding periods.”
That means these FIs establish how much money can move at any give time for a particular payment rail. While Same Day ACH may lead to faster pending transactions, the movement of money is likely to still occur overnight, the executive noted.
According to Maiolo, the ability for companies like FINSYNC to assess the financials of a company is critical to that underwriting process to make sure the cash flow is as fast as it can be — something she told PYMNTS suppliers are “definitely” demanding.
“In a B2B environment, Same Day ACH will give you a pending transaction same-day, but the actual funds are still moving overnight, and FIs are still doing the underwriting based on each account’s historical behavior,” she explained. “We have that information at our disposal, to be able to facilitate that underwriting much more quickly and on a continuous basis, because we can see the activity in their bank account and their financials in real-time.”
Considering the friction associated with checks, businesses are pressing their financial service providers and business partners to accelerate payments, the executive added. FINSYNC can facilitate check-based B2B payments, explained Maiolo, but for suppliers, waiting for those checks to come in the mail, gathering them together, taking them to the bank and waiting for them to settle is a lengthy process.
Commercial cards, too, can solve some of these pain points, which is why FINSYNC is enhancing its card acceptance capabilities with Worldpay.
“A lot of businesses want to get paid as fast as they can,” Maiolo said. “Typically, they’re going to want to receive funds via ACH, because it’s cheaper for them. But if they can receive the funds via credit card, that gives their customers different options, and suppliers get paid in five days instead of 30.”
Even accepting a 2 percent to 3 percent interchange fee is better than the interest rates on working capital loans some businesses may borrow to cover costs while they wait for invoices to get paid, the executive noted.
Ensuring that payments can be received as quickly as possible is all about adequate cash flow management, and data can help companies achieve that goal in a few ways. In addition to being able to accelerate the underwriting process for ACH and card payments — leading to faster settlement of funds — that information is critical to understanding cash positions now and in the future.
“Businesses need the analytics to go with [the payments],” the COO noted, “so they can see on a daily basis their current and projected cash flow, where they are spending the most, who owes them the [most] money — and get a quick view of how the business is progressing.”