ACH and Virtual Card Payments: Benefits of Electronic Vendor Payments

Venmo, PayPal, Cash App, digital wallets — how consumers spend money has changed. Shouldn't businesses adapt to how they spend money, too? While some organizations are working toward an updated approach to accounts payable (AP), many are still doing business as usual. 

Unfortunately, "business as usual" is costly, inefficient, and can damage your reputation. AP teams that haven’t evolved their processes may face challenges, including: 

• Expenses from issuing and mailing paper checks 
• Increased labor costs of reconciling errors from manual data entry 
• Inefficiencies stemming from an outdated manual process that requires extensive matching and approvals 
• Sub-par vendor relationships resulting from late payments caused by a slow process 

A better approach to accounts payable 

It's not an exaggeration to say that artificial intelligence (AI) and machine learning (ML) have revolutionized how we work, from automation to content creation to exceptionally-human chatbots. It's made work more efficient and has been a driver of automating as much as possible — including accounts payable.

• 72% of businesses surveyed in the American Express Trendex report said they're focusing on automating invoices and purchase orders. 
• 36% of U.S. businesses said payment automation saves their finance teams time — an average of more than 500 hours per year. 
• 68% of respondents plan to start or increase payment automation in the next six months. 

Trina Dutta — Vice President and General Manager, B2B Solutions, Global Commercial Services at American Express — reiterates the need for AP teams to upgrade their tech stack to create a more accurate and smoother process: 

“When businesses buy from other businesses, they need to make sure that they are meeting the required payment terms, issuing invoices with all the right data, reconciling the payments accurately, and much, much more. This has historically been a complicated process with many steps, but tech improvements are helping to make that easier and smoother.” 

Savvy AP teams also lead the charge toward a digital transformation, embracing electronic payment options. Electronic vendor payments — like Automated Clearing House (ACH) and virtual card payments — are the new way of doing business. They increase overall efficiency, provide more security against payment fraud, and reduce the time and cost-intensive challenges of issuing paper checks. 

ACH and virtual card payments 

Simply put, an ACH transaction is an electronic funds transfer between banks across the Automated Clearing House network. The Clearing House Payment Company or the U.S. Federal Reserve processes each transaction, including:

• Direct deposit of employee paychecks 
• Online bill pay services for consumers
• Receiving customer payments (like a monthly SaaS subscription) 
• Vendor payments 

While the ACH network is available for payment processing 23 hours every business day, it doesn't process payments in real time. It batches payments four times a day, requiring more time for the money to transfer between accounts. Thanks to the growing popularity of same-day ACH, delays are minimal. 

Here's how it works with vendor payments: 

1. Your organization instructs the bank to initiate a payment.
2. Your bank sends digital payment files to the ACH network.
3. The ACH network sends those files to your vendor's bank.
4. Their bank deposits the money from you.

On both the consumer and business side, ACH is a fast, convenient, and simple way to make and receive payments. It's such common practice that in 2021 alone, the ACH network processed more than 29 billion payments, totaling more than $72 trillion. 

But ACH isn't the only option. Virtual card payments, also known as single-use account (SUA) payments, allow you to pay vendors using a unique 16-digit card number that acts like a virtual credit card — there are no physical cards. Any business that accepts traditional credit cards can accept virtual card payments.

After you're approved by a financial institution to open a line of credit on a virtual card program, issuing payments is pretty simple. Here's how it works: 

1. You send an approved payment file to the bank that provides virtual card payments.
2. The bank generates your 16-digit card number for the requested payment amount.
3. The bank delivers the card on your behalf to your vendor — typically through a secure email.
4. Your payee processes the transaction through their bank and, once authorized, both parties' banks settle the transaction.
5. The payment goes on your account and your enterprise resource planning (ERP) system automatically receives a reconciliation file to match bills. 

Benefits of ACH and virtual card payments 

SUA cards and ACH payments are faster and more secure than cash or check payments. They can also foster a better relationship with vendors, optimize cash flow, and even earn you money back with rebates.

1. Control over payments

Nacha — the governing body of the ACH network — estimates that 80% of ACH payments settle within one banking day, making it one of the fastest ways to send and receive payments. And virtual card payments get processed immediately, so vendors get paid quickly — no lost or delayed payments or lengthy check processing. 

2. More secure

Both ACH and virtual card payments are more secure than paper checks or cash. But SUA cards take security a step further.

• Vendors don't have to share their bank account numbers. 
• Payment information isn't tied to your bank account. 
• Your card number is for a single-use transaction for a set amount for a specified time. 

If someone accesses your virtual card number and tries to spend more than the set payment, the card won't work, adding an extra layer of protection.

3. Happier vendors

ACH payments and SUA cards allow vendors to receive payments faster. While ACH transactions typically take between one to three business days, virtual card payments get processed in real time. Once you send a check, vendors may need to wait a few days for it to arrive, plus two to three business days for the check to process.  

The speed of electronic payments mitigates the risk of lost and delayed payments, fostering a vendor relationship built on trust and reliability. Paid suppliers are happy suppliers.  

4. Simplified record keeping

With a direct pairing of the invoice to the payment method, digital payments provide the benefit of instant reconciliation. There’s no sitting around waiting for a check to clear; your financial records are updated in real-time without delays. 

These digital payment methods also reduce the risk of human error associated with manual data entry. You’ll save time and reduce discrepancies with consistently accurate payment records. 

5. Rebates

SUA and virtual card payments can earn you cash-back rebates every time you pay an invoice, making it extremely attractive for AP teams. Not only is getting rebates a low-effort activity on your end, but the additional cash can be significant enough to offset the cost of core products or fund new initiatives. At OneSource Virtual (OSV), our customers earn an average of $164,000 a year in rebates. 

Improve your payment mix with OneSource Virtual 

Check payments are slow, costly, and can get lost in the mail. As such, many organizations are moving away from them to minimize risks and save money. But setting up digital payments or trying to switch more of your vendors over to virtual card payments can feel challenging at first. That’s why we created our Invoice Pay solution. 

Through Invoice Pay, we help you transition more of your check payments to ACH and SUA card payments to streamline your payment process, provide increased fraud protection, and collect cash-back rebates from vendor payments. Even if you keep some check payments, OSV can help make the process more efficient and lower the associated costs.  

Want to learn more about Invoice Pay and what you can expect when you move away from check payments? Check out our infographic.