If your business has been strapped for cash before, you know the stress-inducing feeling when your client says a payment is on the way, and you have to patiently wait for the funds to be available in your account. Waiting for a payment can cause a cascade effect on your business, causing you to miss a deadline on your bills, strain your relationship with your suppliers, and even bring down your business credit scores. But knowing that your payment will arrive the same day or early the next day could bring some certainty to businesses with a tight cash flow.
Beginning Sept. 15, many businesses will have the option of receiving almost all ACH debit and credit payments faster, thanks to the rollout of phase two of the Same-Day ACH Rule by NACHA, the Electronic Payments Association.
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Same-day ACH means that payments initiated today will be received and credited today. Phase two of the Rule specifies that ACH debit payments, or payments in which a seller initiates a transaction by “pulling” funds from a buyer’s bank account, can be transmitted on the same day the transaction is initiated. Examples of an ACH debit payment could include daily or monthly payments made on a business loan, insurance premiums and other bills.
Phase one of Same-Day ACH Rule was rolled out last year, enabling same-day processing of ACH credit transactions, in which a buyer can send an ACH payment same-day to a seller’s financial institution. ACH credit transactions are payments initiated by a buyer transferring funds to a seller’s bank account, such as paying a supplier, or sending a payroll direct deposit to an employee.
The third and final phase of the Same-Day ACH Rule is to be rolled out in March of 2018, requiring receiving banks to make funds on a same-day ACH transaction available that day by 5 p.m. Currently, banks receiving payment will deposit funds that day into the receiver’s account but they aren’t required to make those funds available the same day.
“Banks are not required to originate same-day ACH transactions, but they are required to accept same-day ACH transactions. Originating is not part of the three phases,” says Katie Hawkins, associate at Hudson Cook, LLP, a law firm that specializes in banking rules. Check with your bank to find out if they originate same-day ACH payments.
Same-day ACH transactions will usually come with an added fee, and buyers still have the option to choose a classic ACH payment to avoid the added fee. Classic ACH payments settle within one to two days. Same-day ACH payments will NOT be available for:
- Transactions over $25,000
- International transactions
- Payments to the federal government
How Do I Initiate a Same-Day ACH?
If your bank does originate same-day ACH payments, you’ll want to first check what the added fee is for originating same day. Zion’s Bank, for example, charges an added $1 fee on top of the fee for a classic ACH transfer. Silicon Valley Bank charges a $5 fee.
To originate a same-day transaction, simply add as the effective entry date on your same-day payment form “today’s” date.
How Does This Affect My Business?
Here are three ways this new payment capability can help your business.
1. Transfer same-day direct deposit payroll to employees. If your bank originates same-day ACH transactions, you can wait until the last minute to make deposits in your employees’ checking accounts by selecting same-day ACH. When phase three is rolled out in March, all employees will be able to access same-day ACH funds that day.
2. Keep late payments off your business credit reports. Regularly missing a payment deadline on your business’s bills can bring down your business credit scores. If your bank originates same-day ACH payments, you can use this to avoid a late payment or avoid making an already late payment worse. A series of missed payments can signal to lenders, suppliers, and vendors that you’re too big of a risk to work with. (You can see your business’s credit score for free on Nav to see how payments may be impacting you.)
3. Know with more certainty when your payments will arrive. “This is particularly important for small business owners relying on short-term cash flow,” says Hawkins. If your customer makes a same-day ACH payment today, you know that your funds will be available by tomorrow, and come March you will get those that payment same-day. If your bank originates same-day ACH payments, you can make payments knowing that the seller’s bank will receive them that day.
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