On September 23, the Automated Clearing House (ACH) Network—which will reach 25 billion originated ACH payments in 2016—launched a new payment option to initiate and settle payments on the same day: Same Day ACH.
Currently, ACH payments settle in one day, with the exception of book-to-book entries. Same Day ACH will yield new opportunities—and will also raise multiple considerations for business leaders and treasurers deciding how to prepare for and use the same-day payment option. Here are the top five things your business should know:
The phased approach to implementing Same Day ACH will give businesses and financial institutions time to adjust to the new payment option. In Phase 1, which kicked off on September 23, businesses will be able to initiate and settle ACH credit transactions $25,000 or less. Phase 2, beginning September 15, 2017, makes debit transactions eligible for Same Day ACH. The final phase goes into effect on March 16, 2018, and will require Same Day ACH credit transactions to be available by close of business—5 p.m. local time.
Same Day ACH is a settlement option for originators that enables the originator to do things like migrate a non-urgent wire, provide a claim payment or send a missed direct deposit entry on an intraday basis. It's one of several transaction options that companies can use as a part of their business strategies and operations. While Same Day ACH is a paid service, the cost is dramatically less than that associated with a wire transfer, giving businesses a new, cost-effective option for settling transactions in one day. Under the Same Day option, the initiating institution will pay a 5.2 cent fee per transaction to the receiving institution, on top of whatever fee would be charged to the originator. Treasurers and business leaders will need to determine which transactions are best suited for the premium service, taking into account not just the fee associated with Same Day ACH but also the opportunities and cost savings inherent in settling a transaction in one day. Importantly, due to OFAC vetting for such entries, international ACH transactions (IAT) and transactions greater than $25,000 are not eligible for Same Day ACH, and during Phase 1, only credit transactions can be made with the premium service.
While businesses can elect to use Same Day ACH as it makes sense for their operations and strategy, all companies must be prepared to receive and settle these payments. Treasurers and business leaders will need to prepare for faster payment reconciliation with updated processes for identifying and posting same-day transactions. The receiving banks may possibly leverage the ability to deliver returns more quickly, which should help companies avoid disruptions.
While faster clearance is the most obvious benefit of Same Day ACH transactions, this payment option can also help streamline payments, expand cash flow and working capital, and reduce paper-based processing and uncertainty. It will facilitate same-day payrolls and business-to-business payments, such as transactions for payment-on-delivery. Same Day ACH can also simplify and expedite termination payments, removing the need to write a paper check for a departing employee. Additionally, Same Day ACH has important benefits for security and reducing the potential for fraud. While wire transfers cannot be reversed, same-day payments can be returned, and businesses will need to ensure the capacity to rapidly make returns.
When the voting membership of the National Automated Clearing House Association (NACHA), which administrates the ACH Network, agreed to the Same Day ACH rule, they did so recognizing a broad desire on the part of businesses, consumers and financial institutions to more rapidly settle transactions. There are real-time payment systems already operating in other countries, and Same Day ACH is an incremental step towards aligning the US system with this growing global standard of transaction settlement speed. When Same Day ACH is implemented, business leaders should contemplate the growing capacity for real-time payments and evaluate how same-day processing fits into an increasingly diverse set of payment options, as well as consumer and business preferences.
Same Day ACH creates both opportunities and responsibilities that business leaders and treasurers should consider and prepare for now. Companies need to assess which ACH transactions can benefit most from same-day settlement, validate the “effective entry date” on origination files and ensure the ACH settlement account is funded to cover these same-day transactions.
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