The world is quickly becoming a digital, paperless place, yet half of all small businesses still use checks to make payments. Take Sara, for example. Sara runs her own custom print shop. She works with a lot of smaller vendors that only accept checks and a lot of one-off clients that prefer to pay her at the end of the day but don’t carry a lot of cash.
Sara’s story isn’t unique — many businesses choose checks over online payments. Some use checks because of familiarity, others because they’re universal, but many choose to pay by check because of cost, security, and cash flow management. However, many of these reasons are based on misunderstandings and myths that prevent small businesses from reaping the benefits of ACH payments.
What Are ACH Payments?
Before we dive into how ACH payments can benefit your business, let’s take a look at what they are and how they work. ACH stands for Automated Clearing House payments. These electronic payments allow a vendor to debit a customer’s account for the amount due. The customer gives the vendor authorization to do so by providing their routing number and account number when the customer agrees to pay.
A Cheaper Way to Get Paid
Many businesses think that checks are a free way to make and accept payments. However, that couldn’t be further from the truth. The real cost of a check varies from $3 to $20, including the cost of paper, stamps, and envelopes, as well as labor hours that are used to mail and reconcile checks. In addition, canceling a check can cost $20 to $30.
If Sara completes two one-off projects per week, for which she collects checks, that leaves her with eight checks a month, which are going to cost her anywhere from $24 to $160 a month to process. That adds up to between $288 and $1,920 every year, which does not include paying her suppliers by check.
ACH payments, on the other hand, have a flat transaction fee of around $0.50. While there is some manual labor involved in making and receiving payments online, it’s not nearly as time-consuming as making payments with physical checks, and accounting happens automatically when ACH payments are connected to invoices or bills.
A Better Cash Flow Overview
Some businesses operate under the idea that the delay that comes with processing checks offers more liquidity and gives them more control over their cash flow. While that idea may be true for a small number of businesses, it applies only to very specific circumstances.
For the most part, ACH payments offer better cash flow because ACH funds become available faster. On average, ACH payments are processed within three business days. Paper checks can take up to eight business days. That does not include the time it takes for the US Postal Service to deliver a check in the mail.
Five days might not sound like a lot, but it is. For a business like Sara’s, where 25% – 30% of her revenue is paid in checks, switching to ACH payments provides a more accurate cash flow projection for her business on a weekly basis.
ACH payments can bring additional value to your business if you make them through FINSYNC’s payments platform. The all-in-one platform automatically matches payments with your accounts receivable and accounts payable, which saves you a lot of valuable time. If you’re already using FINSYNC, enabling ACH payments for your account is simple.
ACH is More Secure than a Check
Many businesses are reluctant to share their bank account information with vendors. This is due to the risk of a data breach, and have therefore stuck to check payments. Unfortunately, using checks doesn’t always protect you from fraud. In fact, about 70% of all organizations experienced check fraud in 2018, according to JP Morgan.
Checks and ACH payments use the same information to process payments:
◦ Routing number
◦ Account number
◦ Payment number
All of the time your check is in the mail, this information is potentially exposed to anyone who comes in contact with it. When you pay using ACH, however, you typically have an extra layer of cybersecurity protocols that your vendors put in place to protect your data.
You can add an additional layer of security by using ACH payments through FINSYNC. The platform stores all account information without ever exposing it to customers or vendors. You don’t have to take responsibility for your customer’s and vendor’s account information and rely on their cyber security to protect yours.
Save Time and Money With ACH Payments
ACH payments offer several additional benefits over paper checks. ACH payment processing times are much faster. Meaning you will get paid faster and have more control over your cash flow. ACH is also a less expensive way to get paid, and using ACH frees up valuable time. If you use ACH through FINSYNC, you can also save time on the reconciliation of accounts payable and receivable, which happens automatically. FINSYNC also makes payment via ACH more secure because your routing information is never exposed to your vendors.
FINSYNC allows you to run your business on One Platform. You can send and receive payments, process payroll, automate accounting, and manage cash flow. To learn more about how we can help your business start, scale, and succeed, contact us today.