The payments industry may be more than ready for the long-awaited launch of Same Day ACH, but can the same be said for businesses and corporates? In this week’s episode of NACHA’s Countdown to Same Day ACH podcast series, Rob Unger, Senior Director at NACHA, gave Karen Webster a glimpse into the corporate side of Same Day ACH and what a business needs to pay attention to as the launch nears.
Same Day ACH is just weeks away from becoming a reality. Consumers are ready; banks are ready.
But are corporations prepared to handle the new world of faster payments?
As part of NACHA’s Countdown to Same Day ACH podcast series, this week’s episode provides a look at what corporations and businesses should be expecting as the ACH Network moves closer to speedier payments and quicker settlements. Rob Unger, Senior Director of Product Management and Strategic Corporate Relations at NACHA, said that, although businesses are generally excited for the change, there’s still much they have to keep in mind in preparation for the first phase of the Same Day ACH initiative.
Listen Up, Corporates!
Corporations and businesses are important stakeholders in the ACH Network, and whether they have a desire to use Same Day ACH or not, Unger said, they need to be prepared for the upcoming shift to faster payments.
Every business that either sends or receives an ACH payment today will be impacted by Same Day ACH when it arrives, whether they like it or not. This is why it’s important for companies to review both their payables and receivables processes.
While it is optional to send a Same Day ACH payment, there are potential impacts to the payables process even if a business will not be sending Same Day ACH payments.
Many businesses set up their payment runs and ACH payment files with financial institutions years ago, and those files could potentially have static effective entry dates — the field a bank will use to determine if a payment goes by a classic ACH or Same Day ACH. Having a stale or static date in that field could result in a Same Day ACH being initiated by accident and money being removed before a sender is ready.
"Even if you're not thinking you're going to be sending Same Day ACH payments, you have to review your payment run and effective entry dates to make sure you're using that correctly,” Unger said.
And though sending Same Day ACH payments will be optional, the same can’t be said for businesses when it comes to receiving faster payments.
"On the receivables side, businesses don't have a choice. If you receive ACH now, you're going to have to receive and post Same Day ACH payments should they be sent to you,” Unger said. "What that means is that, if you receive a payment on day one, you have to be able to apply credit on day one.”
Lack of preparation, Unger explained, could result in consequences to a corporation’s cash position or customer relations, where a customer sends a Same Day ACH payment and expects to receive credit that day.
Whether a corporate entity is making a payment or receiving a payment, Unger suggested using NACHA's Same Day ACH For Businesses Essentials Guide as a resource for recommended processes and actions to take before the launch.
NACHA’s hope is that businesses will make the time to conduct an opportunity assessment, review current payment services and ACH origination or receive agreements, assess internal processes and systems and evaluate their risks.
Making The Case For Businesses
According to Unger, there's a wide range of use cases businesses can evaluate with respect to whether or not Same Day ACH can benefit them.
For time-critical or emergency off-cycle payments, Same Day ACH enables funds to be sent, settled and credited much quicker. This facilitates paying an invoice on the day it is due and conserving funds until that time. It’s also considered to be the lowest cost receipt channel for receiving an expedited payment if a customer needs to make an emergency payment to a business.
"When the debit becomes available next year, we think Same Day ACH is a great option to help reduce risk because you'll get those returns and errors back quicker, so you'll have a better sense of your payment status,” he added.
There are also recognized business needs in the form of emergency payroll payments, off-cycle disbursements, garnishments, tax withholdings or payouts for employees that Same Day ACH can support.
Today, when faster payments are needed, corporations tend to go with the option of using wire transfers, but Unger noted that those can be costly and don’t provide as much remittance information as an ACH payment can.
This remittance information, he noted, is critical for a receiver of a payment to know what the payment is actually for.
Through its research, NACHA has found that many businesses pay with split remittance — they will send a payment, but then they will send the remittance information by fax, email or regular mail.
That means the person receiving the payment has to re-associate that, and that's timely, costly and can slow down the payment.
Unger explained that it’s very important for corporations, whether they are the sender or receiver of the payment, to look at the benefits around sending the information with the payment, which ACH can accommodate.
“Sending that Same Day payment with the remittance information can really help get the payment there and can help that cash be applied faster in the account receivable system,” Unger said.
"We think Same Day ACH can reduce a lot of the friction around the costs and information flow with respect to faster payments.”