When it comes time to pay a bill, most people just want to get it done and move on to the next thing.
If you’re a small business owner juggling all manner of responsibilities, you may be tempted to take the same approach — especially if you’re already comfortable using handwritten checks or relying on Automated Clearing House (ACH) payments from your bank account.
With the bevy of money-sending applications that have emerged over the past decade, there’s no need to settle for a decidedly outdated, slow and inefficient way of paying your business’ bills. The ACH system in the United States originated in the 1960s.
Even if making payments from your bank account is more your speed, there are tools that can optimize your use of the ACH system to save time and give you a greater sense of control over your business’ finances.
An Inefficient Approach
So where is the ACH system lacking? The biggest drawback is that it’s limited when it comes to remittance advice, which refers to the documentation that’s transmitted along with funds to explain how to apply them.
ACH money transfers only allow for a small amount of data to be electronically transmitted. This is typically only a few characters, enough to show up as a brief, often abbreviated description on your bank statement. You’ve seen this before whenever you’ve looked at your bank statement and puzzled as to why half the name of a merchant appears missing.
This limitation makes ACH transfers an inefficient and time-consuming method for businesses to pay their bills as the lack of detail in the remittance advice makes it difficult to reconcile accounts.
Let’s say you’re a software company that accepts ACH payments. You have to sift through invoices, find proof of payment and then cross reference those documents with your bank statement. This can be a frustrating process, as your bank statement may have many entries for similar amounts. Without complete information in the form of remittance advice, it can seem near impossible to sort through everything in a timely fashion.
A Better Way
In 2013, the Federal Reserve published a report aimed at garnering public opinion about the need in the U.S. for faster and more efficient payment options.
In the report, the Fed noted how checks and payments made via the ACH system lacked key features sought by consumers, including being able to provide assurance that a payment would not be returned or reversed; timely notification to the payer and payee that the payment had been made; and masked account details, which eliminate the need for users to disclose bank account information to each other.
The Fed report also noted how ACH relies on systems that are not universally fast or efficient.
What solution did the central bank’s report propose? A payment system that would combine convenience, safety and accessibility at low cost, with technology that would enable faster processing, enhanced convenience and the extraction and use of valuable information that accompanies payments, but the government has not acted on these recommendations.
Of course, much has changed in the past six years. Smartphones loaded with digital wallets and the advent of Fintech-powered, automated payment systems offer options and reliability that far surpass the speed and scope of ACH payments by themselves.
Small businesses, in particular, can benefit from a payment system that saves time and helps make cash flow more predictable.
Even the ACH system can be made more efficient when augmented through the use of applications that enable email notifications to be linked to transactions.
How is this useful? The emails, which can also be sent with attached files, such as an invoice or other document, make it possible for the payment to reach its destination with detail-rich remittance advice.
The information that’s typically included in remittance advice includes the name and address of the payor, the payee’s name and address, the date, the amount being paid, any invoice number and an estimate for when the funds transfer will be completed. A system with attachments even allows the payment to include a copy of the original bill/invoice.
FINSYNC’s integrated suite of financial services software includes a bill payer that makes quick work of online payments. It also features a payments “inbox” that provides vendors a secure way to receive payments and the details of the transaction — without sharing sensitive bank account information.
Perhaps most importantly, the use of a detail-rich payments platform can help you manage your business’ cash flow. The remittance advice from your customers helps create a real-time snapshot of your receivables and outlays, and gives you a clear sense of future transactions.
Isn’t it time to drop those envelopes for something that really pays off?