Faster payments to make ACH debits trickier for B-to-B
Business payments can process much faster in the next couple of weeks, creating a whole new set of benefits and corresponding risks.
On Sept. 15 Nacha will allow businesses using the ACH network for transactions up to $25,000 have their debit payments and credit processed on the same day through more than one time window. The move is part of Nacha's broader "faster payments" initiative, one of many programs taking place worldwide to enable same-day or near-real-time payments processing.
While Nacha started its same-day processing for credits last year, the pending addition of debits to faster processing will pressure business CFOs to improve how they keep track of cash flow, according to Rick Burke, head of corporate products and services at TD Bank and a board member of Nacha.
"We started with credit because there is less risk with sending money via a credit than the ability to debit someone else's account," Burke said .
The actual risk isn't changing. A consumer or a business that allows another party to debit an account is courting an obvious overdraft risk in the name of efficiency—consumers or businesses that opt for auto-payment for recurring bills have to make sure there's enough to cover a payment that doesn't happen manually.
But under the existing system, even these automated payments still had some time to cover overdraft risk. Since same-day debits will happen faster and more often, managing the flow of money into and out of accounts becomes harder. Consumers may have a handful of these payments, but even a small business may have hundreds, making it easy for confusion to arise if payments are processing faster.
"Instead of having a settlement once a day, it happens multiple times a day for a business," Burke said. "You have to make sure that your internal systems can handle the management of these payments."
Of particular importance will be automated treasury management systems that can match transactions to the payor, payee and the purpose of the payment in near-real-time via a digital interface, according to Burke.
There are also security risks. David Barnhardt, executive vice president of GIACT Systems, argues the time to flag suspicious payments or mistaken transfers will get smaller, making it easier for fraudulent payments to get through.
"You'll want to be able to make sure the accounts being debited can fund the transactions, but also be able to see the data related to that transaction," Burke said. "There's not much that's more frustrating than having debits and credits, and not knowing what belongs where."
There are ample benefits to same-day debits, namely the ability to offer more flexible terms and to speed the overall flow of money between parties, according to Burke. Barnhardt also acknowledges the upside benefits even as he discusses the security risks.
"I've seen interest in billers, particularly corporate billers who want to give customers an additional chance to pay a bill on the same business day," Burke said.
There's also an opportunity to get more businesses to automate transactions by offering new payment options.
"Businesses are many, many times slower than consumers," said Rick Oglesby, president of AZ Payments Group. "Consumer behavior changes slowly due to established habits. Business behavior changes slowly due to established habits, as due to having other priorities. The opportunity associated with the electronification of B-to-B payments is massive, yet as with more large things, it is moving slowly."