Is your small business using ACH payments to reduce costs, streamline operations, and improve customer and employee satisfaction? If the answer is yes, then you’re realizing the advantages associated with electronic payments that large businesses have been leveraging for years. If the answer is no, then according to a new study you’re not alone in your continued reliance on paper checks.
Currently consumers pay 500 million bills per month via ACH and 49% of all recurring bills are made via ACH payments for an overall decrease in consumer-to-business checks from 17 billion written in 2006 to 12.3 billion written in 2009. A significantly smaller decline of just 0.4 billion business-to-business checks in the same time period helps to explain why the overall migration from paper checks to ACH payments has not been more pronounced.
A recent research brief from NACHA—The Electronic Payments Association and FIS, “Still Paying with Paper: Small Businesses Continue to Write and Receive Checks,” cited the above statistics for declining paper check usage, and also found that that though paper check usage is rapidly declining overall, it is disproportionately high for small businesses. In fact, the study found that 46% of all checks written were related to small business transactions.
One area specifically identified as a major contributor to check usage is small business payroll. Small businesses account for 43% of U.S. payroll, and generate 2.7 billion checks per year (12% of total check volume). The study found that many small businesses don’t offer ACH direct deposit for payroll to their employees because they think they are too small, they think it is too expensive, or the service has simply never been offered to them. If your small business doesn’t yet offer direct deposit for payroll, you should seriously consider it. You could save between $150 and $300 annually per employee, and you will be making your employees’ lives easier by not forcing them to go to the bank to deposit paychecks. In fact, 86% of employees and employers view direct deposit favorably. Banks view it favorably as well; because it costs them more to process your paper payroll checks than it does to administer your payroll direct deposits. So, if you’re not using ACH direct deposit yet talk to your bank or your payroll provider about starting. You’ll be surprised at how little it costs, how much you can save, and how appreciative your employees will be.
Another area where the study finds that small businesses are generating a disproportionate amount of check activity is B2B payments. The research shows that 51% of small businesses pay their own bills with checks, even if they offer ACH as an option to their customers, and 25% of all small businesses pay other small businesses with paper checks. That makes CCD ACH Payments a huge area of opportunity for small businesses; one that can save money and improve operational efficiency. The CCD (Cash Concentration or Disbursement) ACH Type can be used for both ACH Payment and ACH Credit transactions between businesses of any size. It simply requires that a written agreement be in place between both parties which authorizes ACH payments between their bank accounts. Then any method—phone, email, fax, text, web, paper, etc.—can be used to authorize individual payments or credits. Not only can this result in your business getting paid faster, but moving to electronic payment processing saves money on each and every transaction processed (vs. paper checks and credit card payments) as well as reducing the work involved for accounts payable and accounts receivable functions.
As with direct deposit, there are several ways for small businesses to take advantage of B2B ACH Payments including online bill pay and/or payment processing services from their banks, a vendor’s ACH payment program, or a third-party service like PaySimple that offers ACH payment processing.
Still not sure whether ACH payments are right for your small business? Calculate the savings for yourself. Electronicpayments.org (a NACHA sponsored site), provides two calculators designed to help small businesses make informed decisions about switching to ACH for payments and direct deposit: Direct Payment via ACH Savings Calculator and Direct Deposit via ACH Savings Calculator.