By Geraldine Cruz, Senior Director, Product Marketing, Bill.com
Many articles tout the financial savings and ROI of moving from paper checks to electronic payments (ACH). How large is that number for your business? A previous blog postdetailed the costs of using checks. This blog post will discuss the the costs of using ACH and the calculation of ROI.
The cost of using ACH will depend on how the payment services are provisioned. The cost structure of manually uploading ACH files to a bank system is different from the cost of using the ACH services of a B2B payment solution provider. This blog post will show how the costs of one relative newcomer, Bill.com, compares against checks and manual ACH services.
Manual ACH Services
Businesses that use manual ACH services upload ACH files to their banks, which in turn, issue the ACH payments. ACH is far more efficient than processing checks internally. After all, the business reduces staff time spent on check runs and eliminates the expenses for supplies, postage, and equipment depreciation.
But this method requires managing a separate application and requires double data entry or data file manipulation to import files into the bank system. Getting started requires initial application and data integration to connect the business’ accounting system to the bank ACH system. The ability to upload ACH files to a bank’s system often requires the payment of access fees. And if a business wants to use more than one bank to pay its bills, it will need to establish multiple integration points with all of the relevant banks, and pay the respective bank access fees.
With two separate systems — the accounting application and the ACH system — a user will need another login and will need to manage yet another set of data. When exceptions arise, such as payment cancellations and subsequent credits, both systems need to be updated. Responding to payment questions, reconciling payment issues, and locating documents in response to audit questions are time-consuming and may require search and retrieval from two sets of systems. So while ACH may offer significant costs savings over checks, it is still manual in nature and entails duplicate data entry.
And in order to use manual ACH services, a business must obtain and maintain a vendor’s bank account information in order to issue payments to it, which poses a security concern for some vendors. In addition, the remittance information that the business can send in an ACH payment is usually limited to a few character spaces, making reconciliation of payments challenging. Thus, in addition to inefficiencies imposed on the business making the ACH payment, the vendors must accept significant risks and inferior remittance information when accepting ACH payments.
Alternative B2B Payment Solution Providers
A number of innovative B2B payment service providers offer outsourced check processing and/or ACH payments to drive lower transaction costs, reduce staff labor, and eliminate equipment, materials, and postage costs. These solutions often allow customers to schedule and alter payment dates and control cash flow more proactively. Impromptu payments can be made with virtually no disruptions to workflow. This contrasts with manual check and ACH processes, which require a new set-up for a payment run or a handwritten check to be cut.
But the similarities between B2B payment providers end there. They differ drastically in the level of automation, the ease of integration with business and financial systems, the additional features beyond payments they provide, the level of collaboration they support between businesses and their suppliers and customers, and their cost. However, although many payment providers market themselves as delivering “fully automated” solutions, a business should carefully consider what functions are automated, and to what extent.
Figure 1 compares the major costs of checks, ACH, and B2B payment services. Because of the diversity in the cost structures of using a B2B payment provider, the figure highlights the costs of one service provider, Bill.com.
The cost comparison is based on the following services offered by a Bill.com subscription and transaction fees:
- Bill.com prints and mails checks and processes ACH payments.
- Bill.com syncs with major accounting systems and integrates with all other business systems, eliminating the need for integration services to get started and double data entry to keep all systems up-to-date.
- When a business pays a bill, Bill.com emails vendors to alert them to an incoming payment and gives the vendors access to a portal where they can review payment status, reducing the incidence of vendor inquiries about payment status.
- Bill.com gives customers complete visibility of payment history, including check images — at no additional charge. As a result, reconciling payments and responding to payment inquiries is more efficient than with manual checks and ACH.
- Bill.com provides payment fraud at no additional charge.
One key Bill.com feature that reduces payment processing costs ― but is not explicitly included in the bulleted list above ― is its ability to boost vendor acceptance of ACH payments. With Bill.com, businesses can invite their vendors to accept ACH payments, without requiring the vendors to share their bank account information with anyone but Bill.com. This extra measure of security reduces vendor objections to ACH payments, thereby boosting adoption. As a result, the business is able to issue ACH payments via Bill.com and eliminates check processing costs.
Figure 1. Cost Comparison of Payment Options
With your calculations of the costs of printing checks, using manual ACH services, and using B2B payment providers, you can calculate the savings of using one service over the others.
Bill.com has built an ROI calculator to compute the savings from migrating from internal check processing and manual ACH services to Bill.com services. The summary of an example calculation is shown in Figure 2. If you would like a copy of the ROI calculator, or would like to understand the model in more detail, contact us.
Figure 2. ROI of Using Bill.com as an Alternative to Checks and Manual ACH
Note: Bill.com monthly fees can be provided by a sales representative. The monthly fees are based on a number of factors, including Bill.com modules in the subscription, number of users, and integration with accounting systems. The calculations above assume that Bill.com will continue to process 200 checks and 50 ACH payments for this example business.
Your Homework for this Week
Get started assessing the cost of your payment processes today. Talk with us if you need help collating your costs into a framework that helps you measure and compare the costs of payment options at your disposal.
Related Blog Posts and Content
As discussed above, B2B payment solution providers vary in the features and benefits they offer. An upcoming blog and white paper will highlight features to consider when comparing manual check processes, manual ACH services, and B2B payment solution providers.