Payments without Paper
By Matt Whitaker
Smart Payment Solutions, Inc.
www.smartpaymentsolutions.com
Mwhitaker@smartpaymentsolutions.com
703-516-4282
From ASAE’s Dollars & Cents, July 2003.
Credit card or check? When a new or renewing member makes that choice, it affects your association's finances. Credit card fees can take 2-4 percent off the top. With checks, you wait longer for the payment, and then you have the hassle of processing the paper, taking it to the bank, and waiting for it to clear before you can access the cash.
There is another option--ACH transactions, electronic checks that move funds from one bank account directly to another. Using the Automated Clearing House network, associations can accept checks via telephone, Web, or fax. You can even scan paper checks received by mail and convert them to electronic payments, saving processing time and a trip to the bank, while gaining quicker access to the funds.
Revolutionary? Hardly. You've probably been benefiting from ACH transactions for years. When cable, utility, or mortgage companies offer you the option of having your bank account debited automatically each month, they're using ACH transactions. Or, if your employer offers you direct deposit of your paycheck, it is using an ACH transaction to deposit the money. So what's new? The ability of small organizations to harness the benefits of ACH transactions.
Back to the '70s
The Federal Reserve set up the ACH network in the early 1970s, when it believed that the volume of paper checks would soon overwhelm existing computer systems. For the most part, the network has been used by financial institutions and large companies that could afford to invest in technology. In addition, participants were required to wade through thick regulation manuals, use specified formats to code their own files, decode returned files, and manage the file-transfer process.
Transactions across the network have increased dramatically in recent years, as the governing board, NACHA--The Electronic Payments Association, Herndon, Virginia, has developed flexible rules to accommodate Web- and telephone-initiated transactions. According to NACHA, in 2001, total volume of transactions rose by 16.2 percent, approaching 8 billion. The volume increase from 1999 to 2000 was 12.4 percent. Much of the transaction growth has come from new industries adopting ACH transactions.
What's driving this increase? In the past seven or eight years, many technology companies have entered the scene to deliver ACH capabilities to smaller companies and organizations. Whereas Mmany banks that offer the services require several months of implementation time and still focus their offerings on large clients, which code their own transactions and initiate thousands of transactions per month. However, these new smaller processing companies, called third-party processors, usually offer a convenient front-end interface so that any company can initiate transactions, even if it only collects or writes a few hundred--or a few dozen--checks per month. Using a partner bank, these third-party processors then pass the transactions into the ACH network.can serve companies collecting or writing a few hundred or even a few dozen checks per month.
Seeing benefits (and funds) sooner
For members, electronic checks can be a welcome option. Many organizations and suppliers prefer to pay with checks instead of credit cards. But if they mail a check, they may wait weeks to receive the benefits of their memberships. With ACH transactions, membership dues can be paid with an electronic check online, or by providing bank account information over the phone, giving the association access to the cash within two to three days, not weeks.
Electronic checks also present new options for membership renewal efforts. Send an e-mail to members who are up for renewal, encouraging them to renew by check, and include a 'Pay by Check' link in the e-mail. (Recurring payments are usually effortless with electronic checks, so if you offer or have plans to offer a membership payment plan, you will certainly want to include an ACH option.) You can also use electronic checks for other payments, including conference registrations, e-learning events, and publication and merchandise sales.
The cost of ACH transactions is low compared with that of other payment options. While pricing varies widely, each ACH transaction is typically priced well under one dollar, and more typically in the 30- to 50-cent range. Credit card fees are based on a percentage of the purchase, usually 2-4 percent or more, so for expensive transactions the savings can be dramatic. Paper checks' hidden costs include processing time, trips to the bank, loss of float while waiting for checks to arrive and clear, and high fees on returned items. ACH transactions will usually save your staff time and effort, while allowing quicker access to cash.
Choosing a provider
When choosing a provider, look carefully at the technology as well as the costs. Many providers can have you up and running within a few days. Make sure a service provider can do everything you require, including issue credits (make payments) as well as debits (take payments).
The best solutions will allow you to enter payments directly, such as when a member phones in a renewal, and to upload batch files. For example, if your Web site can capture membership data, you can also capture the payment information and upload that from your system into your processor's system.
Ask suppliers about the capacity of their systems; you don't want a system crash when you are expecting large payments to clear. And ask about holding periods. Most companies will 'hold' your cash in a clearing account for a few days to net out returned checks. In most cases, you will still receive your cash quicker than with a paper check.
Your association and your members will appreciate the benefits of ACH transactions. For members, it's all about convenience; for you, it's a dramatic reduction in credit card fees combined with savings in processing costs.
For more information on ACH transactions, a list of industry vendors, and additional resources, check out NACHA's 2003 Electronic Payments Review and Buyer's Guide.
Matt Whitaker is president, Smart Payment Solutions, Inc., Arlington, Virginia. Copyright 2003 Matt Whitaker.
