Last year, financial institutions, businesses and consumers using the Automated Clearing House (ACH) network to send and process payments gained the ability to send and receive same-day credits in the first phase of three stages in same-day ACH rollout.
Companies quickly incorporated same-day credits into payments strategy and now send nearly 200,000 of these transactions daily, reports NACHA, The Electronic Payments Association.
The second phase of same-day ACH processing, same-day debit requests, began on Sept. 15. As with credits, debits will be limited to domestic transactions of $25,000 or under. Businesses are not obligated to receive any ACH debit requests when another party debits their account, so financial executives should take time to evaluate the pros and cons of participating.
Same-day debits are likely to create even higher demand on this faster payments rail, as NACHA reports that a majority (60 percent) of current traditional ACH transactions are debits. Timeliness matters in nearly every industry – if you can get confirmation of a dollar amount on the same day, it’s beneficial to business partners, customers and employees.
Companies will find that receiving same-day ACH debits is useful for completing transactions such as state and local tax payments, vendor payments, customer refunds, loan payments, paying hourly workers and peer-to-peer transactions. The primary considerations for originating debits are if it can save the company time and money; if it creates a convenience for customers (particularly if it provides faster payment options for consumers); and if the business will be able to expedite payments to trusted partners.
Businesses may also benefit from using this electronic option by decreasing the number of costly paper checks cut and mailed each week by allowing vendors to debit their account.
How Businesses Should Prepare
Companies contemplating incorporating same-day ACH debits into their payment capabilities need to consider how the new settlement windows will impact operations. Unlike classic ACH transactions, same-day ACH debits might not post to the account within normal business hours. A surprise debit not only could hamper the ability to use funds to conduct transactions but put business checking accounts in overdraft and potentially incur fees from their bank or the payee for insufficient or returned funds.
Starting in March 2018, banks will be required to intraday post same-day ACH credits to accounts by 5 p.m. local time, but this requirement does not apply to same-day debits.
For businesses originating debits, timing issues related to the new settlement windows means that East Coast companies could have debit account transactions clear much later in the day than previously or, alternately, see debits post to their account today and not become aware of them until the following business day. Because the new same-day debit capability processing times end in the early afternoon in the Eastern time zone, businesses in the Mountain and Pacific time zones, meanwhile, could experience early business same-day initiation deadlines. Businesses that want to originate same-day debits should check with their financial institution about submission cut-off times.
In the traditional ACH system, users can backdate or incorrectly date a file and the transaction will still process the following business day just like those that are correctly dated. With the rollout of same-day debits, making a similar dating mistake means the debit may default to a same-day transaction.
To avoid unpleasant surprises for a customer or vendor, extra care should be given to correctly date files and update recurring transactions with a proper entry date each time.
Another challenge in the same-day debit system is that money and remittance information may not arrive to the account holder at the same time. Financial departments need to consider creating controls with vendors and business partners by reviewing and amending contracts if necessary to clarify if their business will receive and accept ACH debits. This is especially important as transactions process more than once per day and could potentially cause a backlog. Organizations should not let the convenience of same-day transactions derail their cash application strategies.
In today’s 24-hour business world, faster payments are a necessity, and we can expect the demand for same-day services to climb, with more payment rails and systems investing in similar capabilities.