Evaluating the right payment methods for your business

Jessica Sadow

Jessica Sadow

Director of Product Marketing

Learn more about the pros and cons of paying by check, ACH, and virtual cards when evaluating your business’ payment strategy.

August 8, 2023

6 min read

Evaluating the right payment methods for your business

In the dynamic world of B2B payments, businesses have multiple options to choose from. Traditionally, businesses have made payments by check. According to PYMNTS, some experts estimate that 40% of all B2B payments in the US are still made by check.

However, electronic payments, such as Automated Clearing House (ACH) transfers, and virtual cards are on the rise.  73% of organizations are transitioning their B2B payments from checks to electronic payments according to the 2022 Payments Cost Benchmarking Survey by the Association for Financial Professionals (AFP).

Learn more about the pros and cons of these different payment types to consider when evaluating your payment strategies. 

Check by default

Checks have a long history of being the default form of payment that is widely used even today. Advantages of paying by check include: 

  • Wide Acceptance: Checks allow payments to be made to vendors and suppliers who may have not updated their systems to accept electronic payments.
  • Control and Record-Keeping: Checks leave a paper trail so that companies can track payments, aiding in financial management and auditing. Companies can retain copies of the checks for their records and easily reconcile payments with invoices.
  • Payment Flexibility: Checks offer the flexibility of determining when to send the payment, and can even be post-dated, which can align with cash flow management strategies. This can also help organizations comply with payment terms and agreements.

However, checks are time-consuming, require significant manual effort, and are vulnerable to fraud. This translates to increased costs in labor, processing, and risk of delayed payments. The true operational costs range from $4-$20 per check. Challenges include:

  • Processing Time and Delays: Checks require manual processing and physical transportation,  which can lead to prolonged cash conversion cycles and delayed payments.
  • Manual Effort and Costs: Writing, signing, and mailing checks is time-consuming and labor-intensive. It also results in additional costs such as check printing, postage fees, and resources. 
  • Vendor Relationships: In a paper-based system, it may be difficult to find the invoice, discover where it is in the review process, and supply the answers your vendor needs.
  • Risk of fraud: Checks are the leading payment method vulnerable to fraud. According to the 2023 AFP Payments Fraud and Control Survey, 63% of organizations reported experiencing check fraud. Unfortunately, recouping losses can be challenging since the stolen funds most likely have already been used on another purchase. Almost half of the organizations (44%) revealed that they were unsuccessful in recovering any of their stolen funds.

The rise of electronic payment methods

There are a lot of reasons why electronic payment methods such as ACH and virtual cards are becoming more widely adopted.  In particular, the efficiencies, cost savings, and visibility they provide make them attractive alternatives to traditional payment by check.

Simplifying payments with ACH

ACH (Automated Clearing House) was originally established in 1974 and is administered by the National Automated Clearinghouse Association (NACHA). The NACHA is self-regulating and responsible for the management and administration of the ACH network. They also write the rulebook.

ACH was developed in response to an increasing number of paper checks being issued in the 1970s and the resulting overload on the banking system. It is a US-based electronic system that connects banks, credit unions, and other financial institutions.

ACH is easy to integrate and automate, delivering timely and cost-effective payments. It should come as no surprise that 78% of organizations are already using ACH today

The upsides to using ACH include:

  • Speed and Efficiency: ACH transfers offer faster processing times since funds are electronically transferred from the payer's account to the recipient's account. This benefits businesses with high payment volumes or those who have time-sensitive transactions.
  • Cost-Effectiveness: ACH eliminates the need for costs traditionally associated with checks such as printing checks, postage costs, and fraud. In addition, the fees for ACH transfers are generally lower compared to other payment methods.
  • Automation and Integration: ACH payments can be integrated into accounting software or payment systems, streamlining the payment process and minimizing manual errors.

There are a few considerations when looking at ACH as a payment method.

  • Dependency on Bank Connectivity: To initiate and receive ACH transfers, both parties need bank accounts and access to the ACH network. Some small or international businesses may face limitations in accessing the ACH system.
  • Potential Reversals: Although rare, ACH payments can be subject to reversals due to fraud or disputes. In such cases, the payer may need to address the issue with their bank.
  • Transfer Limits: There is a same-day maximum transfer amount of $1,000,000 (see the latest update from the NACHA website) from the ACH network.

The newcomer is Virtual Cards 

The second most popular new form of electronic payment is virtual cards - providing an additional layer of security, enhanced visibility, and simplifying the payment process. Virtual cards are rapidly growing in popularity. A Juniper Research Report estimates that usage will grow 360% over the next 5 years.

Virtual credit cards are generally not standalone lines of credit—meaning, they’re usually generated in connection to an existing credit account. 

Virtual cards enable:

  • Enhanced Security: Virtual cards generate unique card numbers for each transaction, limiting your exposure for every payment you make. This provides an additional layer of security, reducing the risk of fraud and unauthorized use.
  • Easy Tracking and Reconciliation: Virtual card payments leave a digital trail. Transaction data can be easily integrated into accounting systems, simplifying tracking and reconciliation.
  • Streamlined and Quick Payments: Once generated, virtual cards can be used immediately, eliminating processing and mailing time associated with checks.

There are a few considerations when it comes to adopting virtual cards as well:

  • Limited Acceptance: As it is relatively new, not all vendors and suppliers accept virtual card payments. Therefore it can take some initial work upfront to onboard new vendors.
  • Card Issuance and Fees: Generating virtual cards may involve fees or issuance costs. Businesses should keep this in mind, including improved efficiencies, when evaluating the relative costs of virtual cards vs. other payment methods.

Picking the payment methods that fit your business needs

Selecting the right B2B payment methods requires careful consideration of the requirements and priorities of the business. Checks offer familiarity but can be slow, labor-intensive, and prone to fraud. Electronic payments address some of the concerns posed by check usage. For example, ACH transfers provide speed and cost-effectiveness but depend on bank connectivity. Virtual cards enhance security and streamline payments but may face limited acceptance. 

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