I’m not a hateful person. I have to dig deep down the well to think of someone I hate, and even then I almost always haul up an empty bucket. But there are procedures I truly hate and right now it’s the so-called Automated Clearing House or “ACH”. The name sounds so promising. It sounds efficient. It sounds like a place filled with businesslike horse-sense. Our interactions with ACH are more at home in a Kafka story than a way to actually get business done.
First a little bit of history. The first ACH was created in California in the early 70s to facilitate large volumes of low-value transactions within the US. Remember that part: “low-value”. It has the word “automated” in the title but it takes days to process. What takes so long? Banks gather up the initiated payments from their customers and put them into a set of files and periodically send them out to the ACH. The ACH Operator, a nonprofit called Nacha, adds up all of the transactions every so often and then tells the banks something like, “Hey your customers sent out $3 million in payments and received $1 million in payments; so you’d better have $2 million ready to send so we can settle up.” Then the bank says something like, “Yeah, we’re good. We’ve got loads of cash over here.” Then when everybody has responded that they are good, the instructions are sent to the banks about which banks to send money to. Finally, the banks put the money in each customer bank account per the instructions.
I’m getting tired just writing about this and you’re probably tired of reading it. But this is why it takes several days when it’s all said and done. But what’s worse is that the transaction details from party A to party B are always buried in batch files, which makes it excruciating to figure out what the original instructions were. So when there is a missing payment, it can take many more days of detective work to find where it broke down.
Ok, Mr. Frownypants, then what is the alternative? I’m glad you asked. We process 25~50 transactions per week with wire transfers. You can negotiate a discounted rate for wire transfers with your bank. We pay $10 each, which is a lot if you are sending $50 but not when paying something around $50,000 as we typically are. We pay the sender fees and our recipients pay the receiver fees. If you are giving someone $50,000, they will notice it and if it doesn’t arrive they will have questions about it. I can’t overstate the importance of having a record you can make into a PDF to send them and this isn’t feasible with any ACH payment system I have seen. If you have a lot of small transactions (the original intent of ACH), then try to push those transactions into credit card processors like Stripe. This is what they do.
ACH, on the other hand, has outlived its usefulness for vendor payments and should be taken out behind the woodshed. But it could be worse I suppose; feeling for a check in the mailbox?