Moving money efficiently is the lifeblood of any successful business. From paying suppliers and employees to collecting customer payments, streamlined payment operations are critical for maintaining a healthy cash flow and optimizing financial performance. However, traditional payment methods like paper checks and file-based ACH often involve manual processes, slow processing times, and hidden costs like postage and reconciliation efforts. These inefficiencies can hinder growth and create unnecessary administrative burdens.
Fortunately, businesses can leverage the power of the ACH (Automated Clearing House) network to modernize their payment operations. ACH enables electronic funds transfer directly between bank accounts, eliminating the need for paper checks and manual intervention. Businesses can significantly improve speed, accuracy, and efficiency by automating ACH payments through a modern payment platform. This can translate to faster payment processing, reduced errors, improved cash flow forecasting, and ultimately, increased profitability.
ACH stands for the Automated Clearing House Network, which manages billions of electronic transactions yearly throughout its network of US financial institutions, supporting both ACH credit and debit payments. The National Automated Clearing House Association (Nacha) governs this network, setting its rules and regulations.
An ACH payment is an electronic transaction between two bank accounts that typically takes one to five business days to complete. ACH payments are used for various purposes, such as payroll direct deposits, bills and vendor and supplier transactions, and in some ways offer a higher level of security compared to traditional checks.
Under the ACH umbrella, bank-to-bank transfers are processed reliably via the ACH Network. The ACH network keeps track of all the transactions happening between banks throughout the day. This ensures funds go exactly where they should go and keeps everything organized.
The ACH Network supports various payment types for different scenarios, but the most common categories are credits and debits. Below, we’ll break down the specifics of these two payment types.
ACH credit transactions, also known as push transactions, are the process of electronically sending money to a bank account. An example is an employer depositing a paycheck directly into an employee’s bank account— funds are being pushed into the account.
ACH debit transactions, also known as pull transactions, withdraw funds from a bank account and deliver them to another bank account. This method is commonly used for recurring payments that can be automated for timely and efficient transactions. An example is a lender automatically withdrawing monthly car loan payments from a borrower’s bank account.
ACH Transfer Speeds
Businesses can choose from several different ACH transfer speeds to find the balance between speed and cost for their use case.
With a Standard ACH transaction, it can take up to 3-5 banking days after a transfer is initiated for the funds to be available to the recipient. For those who need faster speeds, Next Day ACH (exclusively through Dwolla) makes funds available the next business day for debit transactions, while Same Day ACH (also known as instant ACH) allows a credit to or debit from a bank account to settle within the same business day.
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Manual payments take a toll on your payment operations and, ultimately, the success of your business. However, since some of these costs aren’t evident in the bottom line, businesses often aren’t aware of their impact until it’s too late to take preventative measures.
The top six hidden costs your business could be facing because of manual payments are:
#1 Slow Processing
Manual payment operations often involve physical documents and manual data entry, leading to slower processing times compared to automated systems. This can delay initiating, approving and completing payment transactions. Slowdowns in accounts receivable can lead to inadequate cash flow and working capital constraints. Slow processing of accounts payable can strain vendor relationships and eventually create supply chain issues. Any payment processing slowdown can be detrimental to customer experience.
#2 Errors
Human errors also contribute to a slow payment cycle and increased costs. The more manual steps involved in a transaction, the more likely someone on your team will make a mistake. Plus, data entry and matching can be tedious and time-consuming, leading to longer processing times, higher labor costs and more mistakes. Payment processing typically has a 10% error margin, and correcting those errors requires exception handling processes and approvals. All of these rework steps take time, and at scale this time costs a lot of money.
#3 Failed Payments
Payment failure can occur for many reasons, including:
Manual payment processes exacerbate the impact of these issues, especially if multiple platforms are involved and they don’t communicate with each other. Invoicing might be separate from approvals, which might be separate from payment initiation. The person interacting with these multiple systems likely won’t catch the issue until the middle of the payment process. At that point, time and effort has been wasted on the failed payment, and the person trying to process it will have to devote even more time to figuring out what the issue is, solving it and reprocessing the payment.
#4 Direct and Indirect Costs
Processing payments manually can result in direct expenses, including:
Additionally, consider the indirect costs of manual payments, such as:
#5 Employee and Customer Churn
The constant grind of managing manual payments can get old for your employees, sometimes resulting in voluntary churn from your team. Manual payments can also take 6-10 days to process, affecting business cash flow and leading to churn from your customers. Automating your payment operations reduces the number of repetitive tasks left for employees, streamlines the process to save more time and effort, and speeds up the payment process to increase cash flow and customer satisfaction.
#6 Inadequate Payment Security
The vulnerability to fraud is higher in manual payments because manual data entry and paper create more opportunities to tamper with payments and the limited audit trail makes it harder to trace. Without real-time monitoring and automated fraud detection mechanisms, businesses are more exposed to fraudulent activities that may remain undetected for extended periods. Lack of timely intervention can lead to substantial losses and compromise the security of payment systems.
Furthermore, manual payment operations often involve the use of physical documents like paper checks or invoices. Documents can be lost, mishandled or accessed by unauthorized individuals, increasing the likelihood of data breaches and compromising payment security.
ACH automation leverages software and technology to automate the initiation, processing, and management of ACH payments, enabling businesses to streamline and secure their financial operations. ACH, or Automated Clearing House, is a network that facilitates electronic funds transfers between bank accounts in the U.S.. Common uses of ACH include direct deposit of payroll, bill payments, and business-to-business transactions.
Automating ACH payments offers numerous advantages, including the elimination of manual processes such as paper checks and legacy ACH files. Businesses can integrate with payment APIs to connect their systems with the ACH network. This allows them to automate tasks such as creating and submitting ACH files, verifying bank account information, initiating transactions, and reconciling payments. Some payment APIs offer real-time transaction processing and status updates, providing enhanced visibility and control over cash flow. Automated ACH, particularly when implemented through reputable payment API providers, can enhance security through features like tokenization and encryption. These benefits ultimately lead to improved efficiency, cost savings, faster payment cycles, and reduced administrative burdens.
ACH payments have grown significantly in popularity—and for good reason. Automated ACH through a payments API can solve many of the pain points in a business’s payment operations when they use:
If a business is primarily processing checks, using ACH payment automation can offer these benefits.
| Faster processing times | ACH allows for faster settlement compared to traditional paper-based methods. Instead of waiting for physical checks to be mailed, received and processed through the banking system, ACH enables electronic delivery and clearing, reducing the time it takes to complete the transaction. |
| Improved efficiency | Automation streamlines the check processing workflow. With ACH, a business can automate the entire process, from payment initiation to settlement, reducing manual intervention and the risk of errors. This efficiency translates to cost savings and a more streamlined accounts receivable/payable process. |
| Lower costs | According to AFP’s 2022 Payments Cost Benchmarking Survey, the median cost of initiating and receiving an ACH payment for all businesses is between 26 and 50 cents. This is a substantial difference from the $2.01 to $4.00 median cost of issuing a paper check. ACH payments have some of the lowest transaction fees and can be processed in large batches and even automated, which can help reduce overall costs and the risk of human error. |
| Enhanced security | Checks can be lost or stolen, leading to potential fraud or identity theft risks, and the manual process around paper checks leaves room for human error and makes them more susceptible to fraudulent activity during mailing. ACH transactions are encrypted, reducing the likelihood of unauthorized access. To help reduce risk, NACHA has rules and regulations for anyone trying to authorize a transaction through the ACH Network. |
| Reduced risk of failed transactions | Bank connectivity providers offer the ability to verify account information and funds availability. Integrating these tools alongside ACH automation can significantly reduce the risk of failed transactions due to insufficient funds, helping businesses maintain a stable cash flow. |
| Simplified reconciliation | With ACH, transaction information is electronically recorded and can be easily integrated into accounting systems. This streamlines the flow of data and increases the accuracy of the reconciliation process. |
| Eco-friendly and sustainable | ACH contributes to a more eco-friendly and sustainable business practice by reducing paper waste and the environmental impact of traditional check processing. |
| Increased convenience for customers/vendors | ACH allows customers or vendors to receive and process payments electronically, which can enhance customer satisfaction and improve business relationships. |
If a business is primarily processing credit cards, using ACH payment automation can offer these benefits.
| Cost savings | ACH transactions often have lower processing fees compared to credit card transactions. Where card processing fees are typically a percentage of the transaction, many ACH providers charge a small flat fee per transaction. This particularly comes into play with high-value transactions. |
| Recurring payments | ACH is well-suited for recurring payments, such as monthly subscriptions or membership fees. Credit cards expire every few years, and customers might switch credit cards due to compromised data or seeking better rewards. Changing banks, however, is inconvenient, so customers tend to keep the same bank account for many years. Consequently, using ACH for recurring payments can reduce the risk of expired payment information or declined cards and time spent asking customers for an updated payment method. |
| Returns and reversals instead of chargebacks | Chargebacks can be a challenge for businesses processing credit card payments. The ACH process uses returns and reversals instead, which tend to have lower fees and be more business-friendly. |
| Enhanced security | Credit card transactions generally experience a high incidence of fraud. As we covered above, ACH transactions and the ACH network offer robust security features, reducing the risk of fraud and unauthorized access. |
| Eco-friendly and sustainable | Similar to check processing, ACH is a more eco-friendly option than credit cards, as it reduces the need for physical materials like plastic cards and paper receipts. |
| Simplified reconciliation | Credit card transactions are sent in real time and vary in format and processing timelines. ACH transactions are batch processed, have a standard format and process predictably, which makes it easier to collect information about them and reconcile them with bank account records. |
If a business is primarily processing file-based ACH, using ACH payment automation can offer these benefits:
| Efficiency and time savings | The most apparent advantage of using automated ACH is the efficiency it brings to the transaction process. Manual ACH processing involves time-consuming tasks like data entry, verification and submission. With automation, you can streamline these processes, significantly reducing the time and effort required to handle ACH transactions. |
| Reduced errors | Manual data entry is prone to human errors, such as mistyping account numbers or payment amounts. Automated ACH processing minimizes these mistakes by eliminating the need for manual data entry. |
| Lower operational costs | By reducing manual labor and associated administrative tasks, automated ACH processing can lead to cost savings in the long run. It enables your team to focus on more strategic tasks rather than repetitive manual processes. |
| Faster transaction processing | Manual ACH processing often takes longer to complete, leading to delays in funds transfers and reconciliation. Automation can expedite the process so funds are transferred and settled more promptly. |
| Improved cash flow management | With faster transaction processing and settlement times, automated ACH can enhance cash flow management for your business, help you meet financial obligations and improve your overall financial planning. |
| Enhanced security | Automated ACH processing typically includes robust security measures, like tokenization, to protect sensitive financial information during transmission. It reduces the risk of data breaches or unauthorized access that may occur when manually handling sensitive financial data. |
| Better transaction tracking and reporting | Automated systems provide detailed transaction logs and reports, making it easier to track payment statuses, reconcile accounts and generate financial insights. |
| Scalability | As your business grows and the volume of ACH transactions increases, manual processing can become overwhelming and prone to errors. Automation allows businesses to scale to higher transaction volumes without compromising accuracy and efficiency. |
An ACH API is software intermediary that allows businesses to connect their systems to the ACH network. This network facilitates electronic funds transfers between bank accounts. Through an ACH API, businesses can automate processes like sending or receiving payments, verifying bank accounts, and reconciling bank records. Payments APIs typically offer a variety of features, such as mass payments where businesses can initiate multiple bank transfers with a single API request, as well as webhooks, which provide real-time notifications for transactions. ACH APIs provide businesses with greater efficiency, security, and control over their payment processes.
The world of automated ACH payments offers a wealth of benefits, and an ACH API is the bridge that connects businesses to the ACH Network for automated transactions. ACH APIs enable a streamlined payments experience by allowing businesses to automate their manual and repetitive payments processes, including data entry and verification, confirmation and reconciliation of payments. Businesses don’t have to stress over paper checks, credit card processing or manual ACH processes. Automation using ACH APIs reduces the risk of errors and cuts down on costs associated with manual labor, leading to more payment efficiency and more time for your business to focus on what’s important.
“…I think ACH in general makes sense so investment returns aren’t impacted by high transaction fees. And once you decide to go with ACH, Dwolla was really the only game in town.” – CEO of investment platform.
More and more consumers expect a digital payments experience and businesses that fail to adapt risk falling behind. Integrating with an ACH API is a simple yet powerful solution that can help businesses stay ahead of the curve.
Here are some examples of how Dwolla customers have used Dwolla’s ACH API to automate payments.
Insurance Platform Uses ACH Payments for Efficient Claim Reimbursement
Investment Platform Facilitates Art Buying with ACH Transactions
Real Estate Platform Uses ACH for Inexpensive, Quick and Reliable Payments
Whether you’re building a platform for investing, a marketplace or service that needs to send mass ACH payouts programmatically, or an app that needs peer-to-peer bank transfers—we’ve got you covered.
Automating ACH payments through a payments API (Application Programming Interface) can significantly enhance security compared to manual processes and outdated payment methods.
To ensure secure automated ACH payments, it is vital to choose a reputable API provider and implement best practices within your business:
While payment APIs offer substantial security benefits, the overall security of automated ACH payments depends on both the API provider's security practices and the implementation and security measures adopted by the business using the API. Choose an API provider that prioritizes security and implement appropriate security measures within your business to ensure the secure processing of your automated ACH payments.
Investing in a payments solution like a payments API, even with a monthly cost, is often far more affordable than the numerous costs associated with manual payments. A payments API can help prevent costly outcomes from human errors, slow payments and poor security measures. The features of such payments solutions make them an ideal option for all businesses.
A business can take advantage of the following benefits by using a payments solution like Dwolla:
#1 Efficiency
Any payments API that can streamline the transaction process will improve your efficiency. Modern solutions can simplify operational tasks, reducing the time spent processing transactions from days or weeks to a matter of hours. Allowing a payments solution to manage and automate your payments will make your business run more smoothly and increase productivity and overall business performance.
#2 Reducing Employee and Administrative Costs
A payments API that doesn’t require manual intervention saves time and money spent on payment processing tasks and employee training. It also gives employees a break from tedious manual processes, which can increase employee satisfaction and retention. Eliminating the need for paper invoices, receipts and checks can save your business money on bank fees and printing, postage and secure disposal costs.
#3 Increase Compliance
Using payments solutions for digital transactions enables businesses to meet industry standards and adhere to best practices. Automated solutions can be configured with built-in controls to help businesses comply with regulations. For example, a system could require two-factor authentication for all payments or automatically reject payments that do not meet certain criteria.
It also simplifies internal compliance procedures and audits. Electronic records can easily be scanned for errors and cross-checked with other documents like requisitions and invoices, and system reports can show all payments made, to whom they were made and the dates on which they were made.
#4 Scalability
Payments become one less thing you have to worry about during your business expansion. Scalable payment solutions can help businesses achieve new growth without sacrificing quality because they can adapt to handle increased transaction volumes and more complex payment processes. For example, Dwolla’s scalable infrastructure and payment API allow businesses to manage up to 5,000 transactions at once in only a few clicks.
#5 Fraud Reduction
Payments APIs provide enhanced security measures and real-time transaction monitoring capabilities. These APIs are able to limit the number of times sensitive customer and account information has to be sent back and forth by using tokenization to prevent unauthorized access. By eliminating the need for paper checks, invoices and receipts, they also limit the chance of unauthorized access to or loss of physical records with sensitive information on them.
Additionally, such APIs typically provide real-time payment status information and notifications. Up-to-date payment statuses give you visibility into each individual payment as it processes, while real-time webhooks proactively notify you about changes in payment status (including returns). Both these features allow you to identify problems and react to fraud quickly. For higher levels of monitoring, you can integrate the payments API with your current fraud monitoring and prevention systems to detect unusual patterns or discrepancies and swiftly identify and prevent fraudulent activities.
Businesses can unlock significant advantages by transitioning from manual processes and outdated payment methods to a white-label ACH API like Dwolla: