Receivable Savvy hosted a webinar in February featuring Robert Unger, Senior Director – Product Management and Strategic Corporate Relations with NACHA, the Electronic Payments Association. The purpose of the webinar was to identify the necessary elements every company should know in order to incorporate ACH into their receivables mix and maximize the Invoice-to-Cash process. Following is the second excerpt from that webinar.
The availability of remittance data
Another big feature of the ACH network is that it supports the transport of data and dollars together. When thinking about a check, accompanying that check payment will usually be some paper telling you what the payment is for and what invoices are being paid. That can all be done electronically through the ACH. With ACH, you can send that payment and essentially all the necessary data such as what invoices are being paid, discounts being taken, etc. That information can be put into the ACH transaction as well. It’s really a matter of converting that paper check information to an electronic, ACH transaction that includes those payments and all remittance information. Now that remittance information can be in electronic data interchange format, in ISO 20022 format. If that sounds like Greek, then it’s basically to say that the data is standardized as it comes to the network. You can’t just put garbage in because that would not help you, the recipient, apply that information to an open invoice. It has to be in a standardized format and that’s what NACHA says is required.
How to get more customers paying via ACH
A lot of you are probably getting checks right now and a lot of folks struggle with how to implement ACH. Then, if you are able to take ACH payments, how does this impact your process and how are you able to get more customers to pay via ACH? From a high level, when you look at the value proposition of taking ACH payments compared to checks, typically customers pay faster and it’s an opportunity for the recipient to reduce DSO. There’s definitive status checking with an ACH payment; recipients are able to get status messages. When a customer is paying by check, the only thing you really get is the check is in the mail. It’s sort of a black hole there.
Getting more customers paying via ACH could start when a customer places a contract or order – that’s a good touch point right. Suppliers can position ACH payments as a payment requirement in contracts. Many customers would likely be very amenable to that. When it comes to being set up in the master file, establish clear instructions in there on how customers are paying you, what you communicated with them and know how to apply that payment when the order is booked.
If a customer is not committed to paying via ACH, especially a small business, then the supplier can possibly offer a debit. We have a case study we’re going to talk about near the end of the presentation regarding that. In this case, rather than see if they can push that payment to you, go ahead and offer the customer the chance for you to pull the funds from their account. Of course you can have an authorization agreement and give them some comfort around that so you’re not going to go take money at any ole time. There are best practices regarding that. In the case of small business customers, the debit is really a good option to get to them to pay you electronically with minimal effort on their part.
Alternatively, maybe there’s a customer capable of sending an ACH payment and for some reason they’re not. As we progress, we’re going to get into a lot of tips and best practices for how you can encourage a trading partner send you an ACH payment.
There are certain things that ACH super users do that other suppliers don’t. First, super users established a marketing budget for increasing ACH payments. We did a study a few years back looking at organizations that have greater volumes of ACH vs organizations that have less volume. The organizations that had more ACH volume had a hard-dollar budget. They committed to marketing ACH with their customers. Another differentiator here, with respect to organizations that receive more ACH vs. organizations that receive less ACH, is that the super users establish goals in their Order-to-Cash process. These are company directives and company goals. Those could include wanting a specific percentage growth of ACH volume, improving the collections process, etc. Also, suppliers can target efforts and align resources to promote greater use of ACH among their customer base. As I mentioned a little earlier, a very powerful opportunity to grow ACH is during the customer onboarding process. Get them set up on ACH, either the debit or credit, and provide them the information you want. That onboarding process is critical because once they’re already established as check payers or card payers, it’s going to be more difficult to change their behavior later on.
You can watch the recording of the entire webinar here (login or free registration required).
