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Electronic Payment Receivables

and the ACH Network –

New Chops for the Old Kid

Robert Unger, Senior Director NACHA ([email protected], 703-561-3913

Amy Morris, Senior Director NACHA ([email protected], 703-561-3936

mailto:[email protected]

mailto:[email protected]

Is there anything about

payments

that gets you steamed?

What are your

top issues?







4

Agenda

• ACH 101

• Increasing Volume of ACH/Electronic Payments

• Managing ACH Risk

• Remittance Information

• Same Day ACH







ACH 101







6

What is EFT – What is ACH?

• EFT (Electronic Funds Transfer) is a general term

designating a system or process for electronically

transferring funds from one bank account to another.

– EFT can refer to ATMs, payment cards, wires, SWIFT,

ACH, and any other electronic means for transferring

funds.







7

What is EFT – What is ACH?

• ACH (Automated Clearing House Network) refers to a

specific electronic payment network.

– The ACH Network is used for consumer and business

domestic and international payments.

– Payments settle within 1-2 days for “classic ACH”;

payments settle in the same day for “Same Day ACH.”

– The Network is governed by NACHA-The Electronic

Payments Association.







8

NACHA-The Electronic Payments Association and

the NACHA Operating Rules

www.nacha.org https://www.nacha.org/rules

http://www.nacha.org/

https://www.nacha.org/rules

https://www.nacha.org/rules







9

In the ACH, What is a Credit Payment – and

What is a Debit Payment?

In a CREDIT ACH payment, the customer or buyer “pushes” funds from the buyer’s bank account to a seller’s bank account.

(Analogy – paying with cash, where the seller then has funds in hand.)

Buyer Bank Buyer Seller Bank







10

In the ACH, What is a Credit Payment – and

What is a Debit Payment?

In a Debit ACH payment, the seller “pulls” funds from the customer or buyer’s bank account for transfer to the seller’s bank account.

(Analogy – paying with a check, where the seller then needs to collect funds.)

Buyer Bank Seller Bank Seller







11

Credit and Debit Payments Have Wide Applicability

• Most any payment can be made using credit or debit

ACH.

– ACH can be used to make payments (domestic and

international):

• Direct Deposit of payroll for employees, taxes, bills, invoice-

based payments, transferring/concentrating funds,

ecommerce/web purchases ….

– ACH payments can be collected in all channels:

• Mail/lockbox, telephone/IVR, Internet, walk-in, mobile, bank-

to-bank, point-of-sale

In 2015, 23 billion payments worth more than

$40 trillion were processed through the ACH Network







12

Credit vs Debit ACH Payment

ACH Credit • Settled upon funds being

received into your account – the money is yours once funds are deposited

• In very rare circumstances, the funds may be “reversed” (i.e., reclaimed) to correct a defined error: – Examples: duplicate

payment file, wrong account, incorrect calculation of amount

– Reversals must be initiated within 5 days of the settlement date

ACH Debit • Settled upon funds being

received into your account - the money is yours once funds are deposited

• Payment can be disputed by customer as to whether payment was authorized: – Consumer has 60 days post

statement to make claim

– Business must make claim within 2 days of debit

• Other risks: invalid account, account closed, insufficient funds







13

ACH and the Order to Cash (O2C) Process

1. Customer

Places a

Contract or

Order

2. The Customer

is Set-Up in the

Customer

Master File

3. The Order is

Booked

4. The Order is

Shipped or the

Services are

Provided

5. Shipping is

Confirmed and

Revenue is

Recognized

8. The ACH

Payment is

Applied

7. The Customer

Pays the Invoice

via ACH

6. The Order is

Invoiced and

Booked into AR

ACH Value Proposition for O2C

• Guaranteed payment (credits)

• Supports easy to use debit payments

and conversion of checks to ACH

• Lowers remittance costs and errors

caused by re-association

• Low cost, low risk

• Accelerated cash flow

• Backed by NACHA Rules







Increasing Adoption of ACH Payments







15

Discussion

• What percentage of your payments made are electronic, and what is the approximate mix of payments being made? – Percent check, ACH, card, wire

• What percentage of your payments received are electronic, and what is the approximate mix of payments being made? – Percent check, ACH, card, wire

• Does your company have goals to increase electronic payments being made, or electronic payments being received? – What are your goals?

– How will you achieve the goals?

– What resources are being invested?

– What has worked in the past?







16

ACH Economics

• ACH payments benefit AR because ACH payments:

– Cost less than check payments

• One leading B2B payment provider cites that receiving a

check costs approximately $1.50, assuming that the recipient

is using lockbox services and receiving about 10 lines of

remittance.

• The cost of the equivalent ACH is pennies.

– Cost less than p-card/credit card payments

• Receiving credit payments typically cost 2% of the

transaction (or more) and other fees may apply (e.g.,

(transaction fee, level 3 data).

• The cost for the equivalent ACH is pennies.







17

AR Trend – Increasing Receivables Costs Driven

By Pcard/Credit Card Payments

• Accounts payable card payments growth:

– Fueled by reward/rebate model (AP as profit

center)

– Funded by AR

• Pros

– Lower risk, easy process

• Cons

– Costs

Purchasing card spending growth in the past two years in the corporate segment (was)

(31%). Going forward, the predicted purchasing card growth is about 10.8% per year

average over the next five years RPMG Research Corporation







18

Receivables Payment “Mix” Strategy

• Companies are successfully reducing AR costs by

strategically managing the “mix” of payments, using

customer segmentation to drive payment choice.

• What is the optimal mix of card, ACH and wire

payments? For example:

Repetitive

Payments

High Value Low Value

& One Off

Small Biz Immediate Inter-

national

ACH (soon)

Card

Wire

How do I wean

customers away

from rebate and

reward card

payments?







20

Next Big Thing in ACH

ACH Rebates and

Rewards

Applies same economic

model as pcard (AP gets

rebate/reward)

Discount rate is less

than card (and is often

negotiable)

Supported by several AP

networks/providers

Credit payment

Can provide enriched

remittance data







21

Maximize Cost Reduction Opportunities By

Growing ACH Volume

• The ACH “super users”

– Set goals for ACH adoption

– Have budgets

– Communicate during onboarding

• Other successful strategies include engaging in various

low cost outreach, as well as investing in customer

behavioral change

ACH







22

What Works - Payment Goals

Billers goals range from efficiency and lower costs; 27%

focused on specific electronic payment growth targets.

“We don't really have any goals or bubbles. We

always want to steer people toward ACH because

our retention is better and it is lower cost. We do

not really have an explicit number, but we do have

a direction.” (Insurance)

“We have goals to drive more recurring payments

with low cost, specifically ACH and Debit. “ (FS)

“Develop a realistic strategy to increase EFT to

replace checks. Recurring ACH is the sweet spot

for our business. We would like to bring Recurring

ACH up from 20% of payments to 50-60%.”

(Insurance)

0% 5% 10% 15% 20% 25% 30%

Other

Make easier

Improve Business billing/ Increase…

Increase Debit

Reduce services requiring labor/…

Decrease Credit Card payments

Increase eBilling

Make faster / reduce DSO

No Goal

Increase / Accept Credit Cards

Increase Online

Get paid / more money / Collections

Incr Pymt options for custs

Increase ACH

Increase all electronic Payments /…

Specific Growth Percent







23

What Works - ACH Marketing Budgets

80% of the participants said that do not have any budget

dollars to spend to promote ACH Payments.

• Although lacking a hard dollar budget, they promote ACH by using

messages on bill statements, website and company newsletters.

Among the 20% that do have hard-dollar budgets, they are Billers who absorb credit card fees and want to encourage customer adoption of

One-time and Recurring ACH.

Q62. Are there budget resources for increasing recurring and/or one-time payments? Q62 - Overall Small Middle Large

Yes 19.7% 16.8% 17.2% 31.7%

No 80.3% 83.2% 82.8% 68.3%

n = 575 268 203 104

Q62. Are there budget resources for increasing recurring and/or one-time [ACH] Payments?







24

What Works - Promotion at On-Boarding

Three-quarters market electronic payments at the time of

new customer enrollment. Q65- Do you market to one-time electronic payment

customers to try and get them on-boarded for

electronic payment?

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Up to $10MM $10MM to$500MM

Over $500MM

91%

82%

65%

10%

18%

35%

Market During Onboarding

Yes

No

Bill messages, new customer

letters, offer through new service,

online push. - Municipal

A new welcome package for new

accounts. Utility

New customer brochure, website,

customer contact representative

contact with customer, bill

messaging. - Utility

Low Cost Opportunity – The Phone Prioritize/segment (e.g. focus on large volume check and card payers)

“The whole

credit/receivables

department picked

up the phones for 2

days to help with

outreach.”

“We held a contest with sales staff,

focusing on promoting ACH to small

business customers.”

“During collection calls we

talk about using ACH to

avoid delays and to

improve credit ratings and

how much more

convenient it is compared

to checks.”

“Our company has an FTE (and

interns) devoted to onboarding

buyers, and we use this position

as an entry level position in the

company – with success they

move into other area after several

months.”

“Our hold message

promotes the benefits

of ACH.”







26

Low Cost Opportunity – The Invoice

• Design the invoice to steer buyers to your website portal and other preferred payment methods – Offer ACH debit option

– Be sure to pre-fill screens

– Use banner ads

• Provide instructions on how to pay via ACH (credit) – including your RT/account, website

portal URL, and how to pay electronically through 3rd party partners (and how to provide remittance)

• Getting customers on e-invoices increases electronic payments – they get invoices earlier and often pay earlier







27

Investing to Change Customer Payment Behavior

• Offer incentives (e.g., discount or extended DSO/float

time) to pay via ACH

• Compensate sales staff for “selling” ACH payment

• Require new buyers to pay via ACH

• Decrease – or retract - early pay discount with check

and card payments

• Partner with financial institutions, payment

vendors and related third parties







Improving Straight Through Processing of

Remittance Information







29

We love ACH payments, but ………….

As our ACH

increases, our

straight through

processing

decreases. We provide

remit

instructions for

payers but

there are

always errors. Payers send us

the remittance

by email, and

we have to

rekey it.

Remit

processing was

working, then it

wasn’t.

Software

updates are

tricky.

ACH Payments Facilitate Remittance Information

Exchange

ACH – Supports “Dollars and Data”

• ACH B2B payments provide payment instructions (e.g., the “check” - who

to pay, how much, when), and can include up to 800,000 characters of

remittance data (e.g., “the stub” - invoices being paid, discounts taken)

Paper check and stub

Converted to electronic ACH payment







32

ACH Record Format: CTX (corporate trade

exchange) – for B2B Payments with Remittance

• The “5” record provides payer and settlement information

Record

Type

Code

Service

Class

Code

Company

Name

Company

Discretion

ary Data

Company

Identifica-

tion

SEC Company

Entry

Description

Comp-

any

Descri

p-tive

Date

Effective

Entry

Date

FRB

Settle-

ment

Date

OFI

Status

Code

Originat-

ing DFI

Identifica-

tion

Batch

Number

M M M O M M M O R M M M

Content

s

5 200 Biller

Additional

Originator

Info

Originator

ID

Number

CTX Specifie

d by

Orig.

YYMMD

D

Blank Always “1” Biller’s

RTN

Assigned

by

originato

r; zero

filled and

sequenti

al

Length/

Alpha-

Numeri

c

1

3

N

16

A

20

A

10

A

3

A

10

A

6

A

6 3

N

1

A

8

TTTT

AAAA

7

N

Position 01-01 02-04 05-20 21-40 41-50 51-

53

54-63 64-69 70-75 76-78 79-79 80-87 88-94







33

ACH Record Format: CTX (corporate trade

exchange) – for B2B Payments with Remittance

• The “6” record contains payee information and amounts

Record

Type

Code

Transac-

tion Code

Receiving

DFI

Identifica-

tion

Check

Digit

Account

Number

Amount Identificati

on#

# of Addenda Name

Reser

ved

Discre-

tionary

Data

Addenda

Indicator

Trace

Number

M M M M R M O M R N/A O M M

Content

s

6 22 Customer

FI

Custo

mer FI

Customer’sC

FI Bill

Payment

Account or

ID #

Amount Bill

Identificati

on

Number

Corresponds to

the number of

addenda

attached; zero

fill

Customer’s

Name

Blank 1 Assigne

d by

ODFI

Length/

Alpha-

Numeric

1 2

N

8

TTTTAAA

A

1

N

17

A

10

N

$ amt.

used for

FI fees

15

A

4

N

16

A

2

2

A

1

N

15

N

Position 01-01 02-03 04-11 12-12 13-29 30-39 40-54 55-58 59-74 75-76 77-78 79-79 80-94

Record

Type

Code

Addenda

Type

Code

Ebill Summary Information Addenda

Sequence

Number

Entry Detail

Sequence

Number

M M O M M

Contents 7 05 Include first 80 characters of data noted below See Field

Defs.

See Field Defs.

Length 1 2 80 4 7

Position 01-01 02-03 04-83 84-87 88-94

• The “7” record contains payment detail (remittance advice) – DATA MUST BE IN STANDARD EDI OR XML FORMAT







34

At U.S.-based companies, email is the most preferred

method for receiving remittance information overall; large

corporations frequently like the EDI and lockbox channels

1%

3%

5%

9%

10%

13%

14%

17%

18%

23%

45%

SWIFT

In-person

Telephone

Statement (Bank)

Electronically

Online portal

Lockbox

EDI

Fax

Mail

Email

Q. Which three methods of receiving remittance information does your company most prefer? (N=150)

Source: Aite Group survey of 150 receivables managers or experts at U.S.-based companies, January to March 2012

3%13%

2%

17%

3%12% 12%

3%

5%18%

13%

20%7% 7%

25%

7%13%

25%

23%

27%

7%

43%32%

5%

43%58%

32%

Small businesses (US$10 million or less

in revenue), n=30

Midsize companies (US$10 million to

US$500 million in revenue), n=60

Large corporations (Over US$500 million

in revenue), n=60

Q. Which three methods of receiving remittance information does your company most prefer? (N=150)

Email

Mail

Fax

EDI

Lockbox

Online portal

Electronically

Statement (Bank)

Telephone

In-person

SWIFT

White labelsrepresent results

that are statistically different from orange labels for

each category







35 U.S.-based companies prefer mail, followed by

email, for sending remittance information

1%

2%

4%

4%

8%

11%

37%

46%

Statement (bank)

Electronically

Lockbox

In-person

SWIFT

Telephone

Online portal

EDI

Fax

Email

Mail

Q. What three methods of sending remittance information does your company most prefer? (N=90)

3% 3% 3%7% 7%

10%

3%

13% 10%

23%

7% 3%

37%

33% 40%

57%

47%33%

Small businesses (US$10 million or less

in revenue), n=30

Midsize companies (US$10 million to

US$500 million in revenue), n=30

Large corporations (Over US$500 million

in revenue), n=30

Q. What three methods of sending remittance information does your company most prefer? (N=90)

Mail

Email

Fax

EDI

Online portal

Telephone

SWIFT

In-person

Lockbox

Electronically

Statement (bank)

White labelsrepresent results

that are statistically different from orange labels for

each category

Source: Aite Group survey of 90 payables managers or experts at U.S.-based companies, January to March 2012







36 While ACH supports data and dollars, only 10% of B2B

payments are sent with the payment using standards

Method or Channel for Providing Remittance Details

Number of

Monthly

Remittances

(billions)

1 Sent by mail 2.6

2 Provided through a bank or third-party lockbox resource 2.2

3 Included with the payment in an unstructured or freeform format 1.7

4 Provided at a location such as an online banking site or the remitter's website that is accessed with a code or

key

1.6

5 Included with the payment in a format supported by a standards group 1.5

5 Sent by email 1.5

6 Provided in Electronic Data Interchange, or EDI, format directly to your company from your trading partner 1.2

7 Provided through a value-added network in Electronic Data Interchange, or EDI, format 1.1

8 Provided by SWIFT (Society for Worldwide Interbank Financial Telecommunications) 0.8

9 Provided by Telephone 0.5

10 Sent by fax 0.4

10 Provided by a trading partner network that is supported by a third-party vendor, such as Ariba or SunGard 0.4

Source: Aite Group

10% of 15.5 billion

remittances







37

. . ., 56% must be re-keyed

Method or Channel for Providing Remittance Details

Number of

Monthly

Remittances

(billions)

1 Sent by mail 2.6

2 Provided through a bank or third-party lockbox resource 2.2

3 Included with the payment in an unstructured or freeform format 1.7

4 Provided at a location such as an online banking site or the remitter's website that is accessed with a code or

key

1.6

5 Included with the payment in a format supported by a standards group 1.5

5 Sent by email 1.5

6 Provided in Electronic Data Interchange, or EDI, format directly to your company from your trading partner 1.2

7 Provided through a value-added network in Electronic Data Interchange, or EDI, format 1.1

8 Provided by SWIFT (Society for Worldwide Interbank Financial Telecommunications) 0.8

9 Provided by Telephone 0.5

10 Sent by fax 0.4

10 Provided by a trading partner network that is supported by a third-party vendor, such as Ariba or SunGard 0.4

8.7 billion, or 56%, of 15.5 billion

Source: Aite Group

There Are Business Practice – and – Technology

Options for Improving ACH Remittance Processing







39

Case Study

ACH Debit Payments Enhance Customer Service & Build Loyalty

Small business customers faced:

• Having cash or check on hand

• Additional fees for COD services

• Business flow interruption, including

shipment delay risk

• Offer an ACH payment option (debit or “pull

payment”) and incentive of 1-2% discount

based on payment date for customers

• More efficient payables for customers

• Incentives made happier customers

• Faster settlement than checks

• Lower costs versus credit card acceptance

Challenge

Results / Benefits

Approach

Wayne D. Gray

Vice President

KHS Bicycles

Our goal is to offer the best customer

service to our customers, and ACH

helped us do that.







Managing ACH Risk







41

The Three Critical Corporate Controls

The three most critical internal controls for any company can be

established by corporate policies should be "operationalized" into

your company's financial transaction process and monitored by

electronic payment processes.

These controls are:

1. Segregation of Duties

2. Delegation of Authority

3. System Access







42

Five Best Practice Controls for ACH Payments

1. Supplier Master File Controls: Use a pre-approved listing of suppliers and

banking information.

2. Systems Access: Development of user profiles, which enforce separation of

duties.

3. Delegation of Authority: Multiple approval processes should occur before

disbursement of funds with dollar limits.

4. Cash Account Reconciliations: Timely reconciliation process using

Sarbanes Oxley standards with the timely review of exceptions.

5. Continuous Monitoring: Frequent monitoring of cleared banking

transactions to catch unauthorized transactions

ACH Transaction Internal Controls

1. ACH Debit Block: Prohibits all ACH debit withdrawals

from the account.

2. ACH Debit Filters: Only ACH debit transactions that

match criteria you set base on payee, and dollar amount

are permitted.

3. ACH Positive Pay: Allows the accountholder to review

ACH debit requests before they are paid.

4. Tokenization: when applied to data security, is the

process of substituting a sensitive data element with a

non-sensitive equivalent, referred to as a token that has

no extrinsic or exploitable meaning or value. Tokenization

is a process by which the primary account number (PAN)

is replaced with a. surrogate value called a token.







44

Seven Best Practices for Protecting Your ACH

Transactional Environment

1. Create and maintain a secure computer environment.

2. Review and understand any software limitations.

3. Require multiple layers of password security.

4. Control the number of authorized users.

5. Limit the use of online banking transactions to specific computers.

6. Have well defined controls in place for making any changes to ACH data.

7. Encrypt data and monitor all changes to ACH data.







Same Day ACH for Businesses







46

Discussion

• Who has heard of “Same Day ACH” and what have you

heard?

• What do you view as the potential benefits of Same Day

ACH for your:

– organization?

– customers?

• What operational impacts do you think Same Day ACH

will have on payments being made or received?

• Do you have any questions about Same Day ACH?







47

The New Same Day ACH Opportunity for

Businesses

Ubiquitous

capability for

moving ACH

payments

faster.

Transactions

initiated within

designated

timeframes

are settled the

same day.

Existing one-day and two-day ACH processing and settlement capabilities will not be impacted

Using Same

Day ACH is

optional for

Originators.

Receiving

Same Day

ACH is

required for

Receivers.

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0ahUKEwjFkZ6U36TLAhVJ8z4KHZ-tCX0QjRwIBw&url=http://www.fotosearch.com/clip-art/fast.html&psig=AFQjCNFZoeS7fsJnlaG4W4Et69AUsILycw&ust=1457102273686318







48

Same Day ACH Benefits

• Payers

– Low cost (compared to other options), ubiquitous option to expedite payments

• Examples: emergency payments, off-cycle disbursements and corrections or

payouts, time critical/due-date payments, account transfers, etc.

– Potential to hold ledger balance/funds longer before payment

• Payment Receivers

– Lower receipt costs compared to other expedited options

– Accelerated funds availability

• Opportunity to reduce Days Sales Outstanding (DSO) – improvement to cash

position for investment/debt reduction decisions

– Faster receipt of remittance for speedier cash application (if remittance sent with

payment)

– Reduced risk (particularly for debits – available 2017)

• Quicker cycle for account verification and returns (e.g,, insufficient funds,

account not found, debit blocks/filters) for payment collection

• Improved account management for debit payers – quicker funds withdraw

• Positive impact to logistics cycle/disbursements of goods/services, improved

product throughput with faster availability of good funds







49

Next Day and Same Day ACH Settlement Timing (NOTE: Eastern Standard Time – and this is not Receiver/payee funds

availability)

Businesses should contact their ODFI for file submission deadlines, and their

RDFI for funds availability and related file delivery schedules.

3:0

0 A

M

4:0

0 A

M

5:0

0 A

M

6:0

0 A

M

7:0

0 A

M

8:0

0 A

M

9:0

0 A

M

10

:00

AM

11

:00

AM

12

:00

no

on

1:0

0 P

M

2:0

0 P

M

3:0

0 P

M

4:0

0 P

M

5:0

0 P

M

6:0

0 P

M

7:0

0 P

M

8:0

0 P

M

9:0

0 P

M

10

:00

PM

11

:00

PM

12

:00

mid

nig

ht

1:0

0 A

M

2:0

0 A

M

Next Day ACH 2:15 AM - ODFI Deadline for Next-Day ACH Transactions (originated PREVIOUS day)

6:00 AM - RDFI receipt files of Next-Day ACH

8:30 AM - Settlement

Same Day ACH Window # 1 10:30 AM - ODFI Deadline for Same Day Window # 1

11:30 AM - RDFI Receipt Files for Same Day Window # 1

1:00 PM - Settlement for Same-Day Transactions for Window # 1

Window #2 2:45 PM - ODFI Deadline for Same Day Window # 2

All times Eastern Time 4:00 PM - RDFI Receipt Files for Same Day Window # 2

RDFI File Receipts Times Are Approximate 5:00 PM - Settlement for Same-Day Transactions for Same Day Window # 2

DETERMINED BY ODFI-Originator Agreement - Times at which Same Day ACH payments are due to the ODFI, and when Originator account is debited.

DETERMINED BY RDFI-Receiver Depository Agreement - Time(s) at which Same Day ACH Funds are credited to the Receiver and Receiver's ACH account is adjusted







50

Phased Approach to Same Day Implementation

Phase 1

Sept 2016

• Credits only

• RDFI sets receiver funds availability

Phase 2

Sept 2017

• Credits and debits

• RDFI sets receiver funds availability

Phase 3

Sept 2018

• Credits and debits

• Receiver funds available at 5pm RDFI local time

These are minimum requirements – FI can exceed – could give availability earlier

May adjust balnace throughout day







51

What Transactions Will Be Eligible for Same

Day ACH?

Almost all credit and debit ACH payments

Example credit and debit payments: payroll, T/E, supplier payments, state

taxes, bill pay, urgent claims/refunds, person-to-person, account-to-

account, check conversions, collections, e-commerce/web payments, etc.

Non-monetary transactions

Examples: prenotifications, notifications of changes, zero-dollar

remittance information transactions, etc.

International transactions (IATs) and single payment transactions

over $25,000 will not be eligible for same-day processing

Federal government payments

The federal government will not be participating in phase 1 of the Same

Day ACH implementation, and will not send or receive Same Day ACH

payments at this time.

Electronic Payment Receivables and the ACH Network New...

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