How ACH works for business payments

If you’re considering implementing ACH payments for business-to-business (B2B) transactions, there are a few basics you should know.

Business to business ACH simplifies payments to vendors and suppliers, and they have a plenty of benefits. Business ACH payments are a faster and more efficient payment method than mailing paper checks, and they cost less than processing debit or credit cards.

Here, we'll discuss what B2B ACH payments are, how they work, and what you need to know before implementing them for your business.

What is business to business ACH?

ACH payments are electronic payments. They move money electronically between bank accounts using the Automated Clearing House (ACH) Network, an electronic funds transfer system managed by a nonprofit called the National Automated Clearing House Association (Nacha). You’ll often hear ACH transactions referred to as direct deposit or direct payment.

ACH can be used to process payroll direct deposit, Social Security benefits and tax refunds, for example. Consumers frequently use ACH debit transfers to pay recurring bills like mortgages and utilities. Businesses use ACH to process large volumes of transactions (also known as mass payouts) and one-time payments to vendors and suppliers.

Business to business ACH is widely used: In the first quarter of 2022, there were 7.3 billion B2B ACH payments. In 2021, businesses made 8.7% more ACH payments to other businesses than the previous year.

How do business to business ACH payments work?

Business to business ACH payments are a straightforward process that require very little work for both the sender and the recipient. These payments are conveniently automated, which is a reason they're so popular. Your business just needs the recipient's bank account information, name and address to get started.

Suggested reading: An guide to B2B payments

While the B2B ACH payment process is simple for the sender and recipient, there are are several steps that happen along the way between the banks and the ACH to keep the transaction secure (that's where the the “clearing” part of the “clearing house" house comes in).

A simplified illustration of the ACH payment process
  1. Initiate payment. Your business (the payment originator) initiates the payment by authorizing the transaction.

  2. ODFI records transaction. Your bank (the Originating Depository Financial Institution), records the transaction.

  3. ODFI sends payment request to the ACH. The OFDI sends batches of ACH requests one to three times each day to the ACH operator.

  4. ACH operator receives request. The ACH operator receives the batches, accepts the requests, and processes them so they get to the correct financial institution and account.

  5. ACH operator sends payment to the RDFI. The ACH transmits the requests to your recipient’s bank (the Receiving Depository Financial Institution).

  6. Funds reach recipient's bank account. The funds should reach the recipient's account within one to three business days. Meanwhile, you’ll see a debit in your account showing that the payment has been deducted.

The timeline between initiation to settlement will vary depending on which business to business ACH speed you choose (more on that below).

Types of ACH Transactions

ACH transfers are either debit transactions, where money is pulled from an account or credit transactions where funds are pushed into an account.

  • ACH debit. This is simply a request sent to the ACH network to pull money from the account. You can think of this as the outgoing message.

  • ACH credit. This is essentially a digital check made out to the business that has provided the goods or services.

B2B ACH transactions can occur one-time or they may be standing orders that are filled at regular intervals.

B2B ACH processing speeds available

In general, business ACH payments can typically take three to five days to process.Here's what you can expect:

  • Standard: 4 to 5 business days. This may be "standard," but it's not typical. The Automated Clearing House has increased its speeds to be more competitive.

  • Expedited: 2 to 3 business days. This is much closer to what your experience might be.

  • Next Day ACH: 1 business day. This is how most business-to-business ACH transactions are processed. Note that this doesn't include weekends and bank holidays.

  • Same Day ACH: End of business day. This is the fastest option, though you might have to pay a slightly higher fee. Transactions are put through in morning and afternoon batches, and funds are available within a few hours.

Is business-to-business ACH right for you?

ACH payments are usually a better choice for businesses than paper checks and wire transfers, especially when processing a high volume of ACH B2B payments.

Here are several highlighting benefits of ACH to consider.

B2B ACH transfers are cost-effective

Whether you’re making a payment or receiving one, business to business ACH transfers are typically much less expensive than wire transfers, checks, credit card payments or debit cards.

Payment processors usually charge a flat ACH processing fee of less than $1 per payment. The more transactions you process, the lower the cost to your business, especially when compared to credit card fees.

In contrast, wire transfers within the United States usually cost between $25 and $30, which isn't practical for high-volume B2B payments.

ACH B2B payments are efficient

For high volumes of B2B payments, ACH transactions win hands down over wire transfers or other forms of payment, especially for paychecks, bills and supplier invoices. Businesses are able to streamline both payments and receivables processes.

Other benefits include:

  • Reducing errors

  • No manual entry needed

  • Happy vendors due to faster payments

  • Stronger business relationships

ACH payments for businesses are secure

Paper checks can get lost or stolen on the way to the recipient, which can put a business’s bank account information into the wrong hands. Business to business ACH payments transfer money directly between accounts with bank-level encryption so there's no risk of leaking confidential information.

And for further peace of mind, know that ACH payments are subject to Nacha rules and regulations, so ACH Network participants have to follow security measures around protecting sensitive data and verifying identities. Most payment processors will reverse the charges if there’s fraud or a mistake was made.

B2B ACH transfers can also be reversed fairly easily, unlike wire transfers for example.

Business to business ACH payments are easy to manage

Compared to wire transfers, initiating ACH payments from one U.S. company to another requires minimal information. Typically, all you need from the recipient is:

  • The 9-digit ABA/routing number of the receiving bank

  • The recipient's bank account number

  • The recipient's name, as listed on the account

  • The recipient's address, as listed on the account

ACH payments for businesses also make things easier on your accounting department so they can track payments more efficiently. There’s no need to account in your books for paper checks that have been mailed but not cashed, for example.

Setting up business to business ACH payments with Routable

If you're considering setting up business to business ACH, Routable is an easy way to get started. We support all ACH payment speeds, and you're automatically set up to send ACH payments when you register for a Routable account.

And when using Routable for payables, you'll have the option of integrating the platform with your existing accounting software. You'll enjoy a streamlined approval process and fast reconciliation among other benefits. We connect to XeroQuickBooksNetSuite and Sage Intacct.

Find out more ways Routable can make your accounts payables process more efficient.

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