Understanding the Real Cost of ACH Payments

June 4, 2019 Josh Cyphers

What does it cost for your company to send an ACH payment? If you said somewhere between $0.25 and $0.50, that’s not surprising, because that’s the transaction charge that shows up on your bank statement. It looks downright cheap, and it really looks like a bargain compared to the $2.00-5.00 industry research says it costs to process a check.

Then why are companies still making more than half of their supplier payments by check? Not every supplier will accept a credit card for invoice payment, but any supplier with a bank account should be able to receive an ACH payment. It seems like a no-brainer, but when you take a hard look at all of the effort involved in setting up and maintaining an ACH program, you see that ACH payments are a lot more expensive than they appear.

How much more expensive? It’s really hard to find industry data on this, so we set out to find out. In our report, “Beyond the Bank Statement: Understanding the Real Costs of ACH Payments” we calculate the true cost of ACH payments, taking into consideration all the effort commonly associated with them—beyond just the bank fee.

accounting specialist calculates the cost of paying suppliers by ACH

A widespread misconception

Why does it matter? ACH payments are an important component of any payments strategy, and there are new payment automation solutions designed to help enterprises finally eliminate checks and pay most of their suppliers electronically. But, if you don’t understand your costs, it’s hard to make the case for new technology—or even make intelligent decisions about how best to pay a given supplier.

As a provider of B2B payments automation solutions, we frequently talk to companies that had big ambitions to move most of their suppliers to ACH payments and started down that path and stopped once they realized the difficulty of the undertaking. Some even completely abandoned the initiative and went back to paying by check. We’ve come to believe that the widespread misconception that ACH payments are cheap is part of what’s keeping companies stuck writing paper checks.

A subject rarely studied

Even studies that look beyond the bank transaction fee and include costs such as recording, personnel, IT, and technology still peg the cost of making an ACH payment at less than $1.

However, we estimate that the real cost of ACH payments is somewhere between $1.40 and $3.79.

What is it we’re counting that other studies aren’t? Supplier enablement costs on the front end, and error resolution costs on the back end. Every organization that does ACH payments will recognize that these costs are real, even if they’ve never tallied them up, which we’ve done.

Why isn’t supplier enablement considered when tallying the cost of ACH payments? Well, we suspect this data is hard to come by, but because we’ve enabled over hundreds of thousands suppliers over the past decade, and we were able to use our data for our calculations. In the report, you’ll learn the average cost to enable a supplier in a best in class enablement organization.

Accounting for supplier churn

Not only do most calculations leave out supplier enablement, they also fail to consider that if you are going to maintain an effective ACH payment program, you have to embrace supplier enablement as an ongoing effort. Your company is always adding new suppliers, and about 10-20 percent of your existing suppliers will change their banking information or payment instructions every year.

What does this supplier churn cost your program? It depends a lot on the size of your company and what business you’re in. Are you adding ten new suppliers a month or 100? Do you have 10,000 suppliers and 20 percent churn? Or 5,000 suppliers and 30 percent? In our report, we calculate the costs for companies with moderate and high churn.

The hidden cost of errors, change requests and failures

The other thing research on ACH costs doesn’t consider is that payments fail. According to one study, between one and three percent of payments per ACH batch requires attention on the part of AP to investigate, communicate and resolve the error. That costs money. And, if you make an mistake with an ACH payment, bank fees are involved because the debit and credit have to be reversed. All of those costs are included in our tally.

Other considerations

What’s not included? Our calculations still leave out some costs that are even harder to get a handle on, such as:

  • Data security. Securely storing suppliers’ banking information is a tall order in today’s regulatory climate.
  • Fraud. Non-recoverable fraudulent payments should be taken into account.
  • Supplier support. Since ACH payments just show up on the supplier’s bank statement without any remittance data, AP inevitably has to field phone calls asking what the payment is for—especially when one payment covers multiple invoices and credits.
  • Lost check float. Even in today’s low interest rate environment, large Treasury organizations still make money on check float. Automating payments with modern solutions can more than make up for lost float, but AP and Treasury need to work in concert to time payments with precision and capture all available discounts.

As you begin to calculate costs at your company, you may want to take these into consideration.

Busting the cheap ACH myth

There is a longstanding misconception that ACH is cheap, because we can see a transaction fee on our bank statement and it’s less than a dollar. That obscures the real cost.

The reality is that with all types of business payments—check, card, wire and ACH—transaction processing is only a fraction of the total cost, and in our report you will see how these costs can really add up. That goes a long way toward explaining why we haven’t seen ACH adoption at anywhere near the rate you’d expect as organizations push towards digital payments.

Toward a modern payments strategy

This isn’t to say ACH isn’t a better way for businesses to pay than paper checks. In most cases, it is, but for suppliers that accept cards, paying by virtual card could be an even better way. What companies really need today is a holistic payments strategy that optimizes every payment to every supplier.

Is your company interested in making more payments electronically? Are you making ACH payments, but only to your top tier suppliers or suppliers that demand it? Have you put more effort behind trying to pay more suppliers by ACH, only to end up feeling like you were treading water? You’re not alone. Get the report to see beyond the bank statement and learn how payments automation solutions can finally help you realize the potential of ACH payments.

 

Cost of ACH worksheet on a clipboard Download the Worksheet: Understanding the Hidden Costs of ACH

About the Author

Josh Cyphers

Josh Cyphers is the Vice President of Strategic Planning & Analysis for Nvoicepay. For the past 20 years, Josh has managed successful growth for a variety of companies, from start-ups to Fortune 100 companies. Prior to Nvoicepay, Josh was a Senior Manager and Consultant at Microsoft, Vice President of Finance at Via, and Business Planning and Analysis Manager at Nike. Josh is a lapsed CPA, and has a BS in Economics from Eastern Oregon University.

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