So you're thinking about going paperless with your payments. Great. Now how do you decide which electronic format is best for your organization?
As Accounts Payable continues to move away from paper checks, two formats for electronic business-to-business payments have come to be preferred: Automated Clearing House (ACH) transactions, and Commercial Card transactions, which include virtual cards, one-time use cards or single use ghost accounts (SUGA), and purchase-cards (P-Cards).
What's the difference between the two?
Both are electronic. Both eliminate check use. Yet, for the vast majority of B2B payments, card-based virtual payments yield benefits for both the buyer and the supplier that ACH transactions just can't match.
In another post, we'll highlight the advantages of virtual card vs. ACH from a supplier's perspective. Today, we'll focus on the benefits to purchasers:
ACH transfers require the buyer to have the supplier’s bank account information, sensitive information that suppliers may be hesitant to share especially with one-time buyers. The buyer also has a risk associated with maintaining and updating the supplier’s bank account information. If current banking account information isn’t maintained, the ACH transfer will not occur or the wrong account may be credited.
With virtual cards the supplier uses the buyer’s one-time (single use) card information and the card limit matches the amount of the invoice being paid. The buyer isn't required to store any supplier banking information, and card information can even be protected by a password provided to the supplier. These features automatically reduce security and fraud risks, and eliminate Payment Card Industry (PCI) compliance issues.
Additionally, with ACH transactions, the buyer assumes overhead and risks associated with validating the supplier’s bank account information to comply with the Office of Foreign Assets Control (OFAC) and the USA PATRIOT Act. In the card world, the merchant bank handles all of those requirements for the buyers.
The remittance advice sent with ACH payments is usually insufficient for automatic processing, instead requiring manual intervention. Some banks cannot display all the available information on the remittance advice, while others charge additional fees to display details. Furthermore, with ACH the remittance data is usually sent separate from payment, complicating the reconciliation process.
In contrast, virtual card information (sixteen digit card number, expiration date and cvc) is sent via email or fax along with complete detailed remittance information and typically does not require any manual processing. Remittance details can also be customized free of charge.
Cost is another factor when considering ACH vs. commercial card transactions. As opposed to the potential cost of using ACH, buyer organizations are eligible for rewards or rebates through virtual card use. Typically the higher the spend levels put on the card, the higher the rebate dollars shared back. That’s hard dollar revenue back to your organization’s bottom line—just for using virtual cards for electronic payments.
Typically seen as a “cost center,” an organization’s AP department is often under pressures to cut costs and add value. With virtual cards, many AP departments have generated enough rebates to fund process improvement capital projects including payment automation, e-invoicing systems or ERP conversion.
If you're considering a move to automated payments, it’s important to weigh your options—and the pros and cons of each—to ensure that you’re maximizing your organization's Accounts Payable efficiencies.
Get all the benefits of virtual card vs. ACH to both buyers and suppliers in one handy, printable format. Grab our article download Virtual Card vs. ACH: How two dominant forms of paperless payments stack up against one another now.
This is an update of a 3.12.15 post and adapts some material from our partners at AOC Solutions.