In an effort to work toward the adoption of faster electronic payments, the National Automated Clearinghouse Association (NACHA) began the rollout of Same Day ACH (Automated Clearing House) capabilities last year. In September 2016, phase one of three for Same Day ACH service was implemented by starting with credits only. As you may know, there are two basic types of ACH transactions, including credits (allowing money to be pushed) and debits (allowing money to be pulled).
As expected, missed payroll deadlines, late vendor payments, and time-sensitive or discounted invoices appeared to be the primary reasons for the use of Same Day ACH payments. According to the NACHA, the same day service from September 23 to December 31, 2016, determined that almost $17 billion was transferred by Same Day ACH, representing more than $13 million in transactions. In fact, over 52% of those payments were direct deposits (business to consumer).
Expanding Same Day ACH service to include ACH debits, also known as phase two, became available on September 15, 2017. Those companies concentrating (or pulling) money will benefit by earlier collection of payments from business clients as well as consumers. Businesses will find that collecting payments authorized over the telephone and internet will also benefit from Same Day ACH. Consider the advantages to a small business owner now having the ability to collect and settle payments for products or services on the same day of the transaction or appointment. It’s already evident that companies are more interested in this second phase in the evolution of ACH improvements. This ongoing improvement in payment efficiencies will certainly enhance cash flow for companies, regardless of their size or industry.
Lastly, the final phase (three) of Same Day ACH addresses the timing of funds availability. Currently, the receiving bank (or financial institution) is required to post Same Day ACH transactions by the end of the business day. By March 16, 2018, a credit transaction has to be made available for cash withdrawal by 5:00 PM local time. Based on informal discussions with peer and partner institutions, most banks have already made funds available after receipt and processing of the Same Day ACH files, not at the end of the business day.
All financial institutions using ACH are required to receive Same Day ACH transactions (both debits and credits) even if they are not planning to offer the origination of Same Day service to their clients. This mandate requiring all financial institutions to receive will ensure a consistent and strong payment network for Same Day ACH service. It’s important to note, Same Day ACH will not be made available for cross-border or International ACH payments (known as the International Air Transport Association (IAT) payment type). This is due to concerns over the additional screening needed, fraud reduction verifications, and the timely manner in expediting the IAT payment. Another restriction of Same Day ACH is that only ACH transactions up to $25,000 are eligible for same day availability in an effort to help mitigate risk. According to NACHA, 99% of ACH transactions are under this limit so this dollar restriction should have a minimal downside.
Companies who originate ACH transactions should check with their financial institution to see if it is offering the Same Day ACH service, find out what is necessary to use it (or if it is automatically available for ACH originators), and become aware of the appropriate cutoff times for Same Day service. Each financial institution may have slightly different cutoff times for processing Same Day ACH in order to make NACHA deadlines. In addition, since banks are required to pay an additional cost for same day service transactions, it’s likely that Same Day ACH will bear a slightly higher cost per transaction.
If businesses aren’t already using Same Day ACH services, they’ll benefit by gaining greater control over their cash receipts, improving cash flow, and utilizing a more cost-effective way to collect payments.
By Jon Moen, a Certified Treasury Professional® (CTP) and Director of Treasury Management at First Bank. Jon can be contacted at email@example.com. His CTP credential is awarded based upon experience and passing of a rigorous examination that requires ongoing professional development to maintain. The CTP is administered by the Association for Financial Professionals, the leading association for treasury and financial management professionals, with more than 16,000 members worldwide. First Bank’s Treasury Management focuses on cash flow solutions for commercial and small business clients. For more information or questions regarding Same Day ACH, or the Same Day ACH expansion phase, please feel free to contact Paula Buie from First Bank’s Treasury Management group at 314-692-6353.