If you run a small business, you know that running payroll and paying your vendors with paper checks can be time-consuming. Digital payments, like ACH payments and eWallet, save time, frustration, and trees and give you a clear snapshot of your cash flow, instead of waiting for paper checks to clear at different times.
Digital B2B business payment processing can also reduce instances of fraud. A survey by the American Bankers Association found that fake checks accounted for 35% of industry losses in 2016 — electronic fraud accounted for just 7% of those losses.
As it becomes easier for sole proprietors to go digital through their existing small business accounting software or by using an electronic wallet, is the future of paper money on borrowed time? We’ll look at the two most common forms of digital vendor payments. As you consider your options, modernize your opportunities with a phone and Internet service that meets your specific needs.
What are ACH payments?
The most common way to make digital payments is with Automated Clearing House (ACH) transfers. These are low- or no-fee electronic bank transfers using a bank account and routing number. Whether you’re receiving paper or digital invoices from vendors, an ACH payment can get the job done without writing checks.
Payments are administered by the Automated Clearing House Network, which is run by NACHA, formerly the National Automated Clearing House Association. In addition to B2B payments, it also handles direct deposits for salaries, electronic tax refunds, and recurring bill payments.
It’s quick and easy to set up your existing accounting software, like QuickBooks, FreshBooks, or Zoho Books, to make digital vendor payments. If you’re paying a monthly subscription fee, some plans offer ACH invoice payments at no cost. If you use a financial institution for payroll or a payroll service, they can help you start making electronic payments.
Unlike wire transfers, which arrive in minutes or hours but come with hefty transaction fees, ACH payments can take several days. For a small fee, some services let you send same-day or next-day ACH payments.
To set up a vendor, you’ll need the account number where the funds will be transferred, the routing number for that bank, and proof of their authorization. Once you have that information, it takes just a few minutes to set the vendor up for payment in your bookkeeping software.
How does digital wallet work?
Digital wallets are most frequently used to make payments from a consumer to another consumer or a consumer to a business, but digital wallet (or eWallet) payments offer benefits when paying contractors, too. They are typically peer-to-peer services, meaning funds are transferred directly without relying on a financial institution as a middle man. Digital payments often arrive within minutes or hours and are simple to send from a mobile device or the web.
Payments are made using a mobile phone and digital wallet app, like Apple Pay, Samsung Pay, or Android Pay, or a third-party service like PayPal or Venmo. You and your contractor enter your bank information, debit card, or credit card and use a mobile or web app to send a request for payment or to make a payment. Your account information and transactions are encrypted, and neither party shares sensitive information about their bank accounts.
While simple, secure, and fast, there are potential downsides of using peer-to-peer payment systems for B2B transfers:
- You may not be able to track your vendor payments as easily as using small business banking software to make ACH transfers.
- It can be difficult to view all your invoices and payments in one place.
- Keeping track of your contractor payments when sorting your deductions at tax time can be difficult.
Staying up-to-date with today’s technologies can simplify how you run your small business. For most, the easiest and most organized way to pay vendors is through your business accounting software using ACH transfers. Whether you use ACH payments or an eWallet app, the convenience and speed of digital payments can simplify your invoicing system, saving you time to focus on other essential tasks for your small business.