Comparing Virtual Cards and ACH
By 2020, finance professionals anticipate that ACH transactions will have bypassed checks as the most frequently received B2B payment type (Credit Research Foundation and NACHA - The Electronic Payments Association). Clearly, this payment type must present a number of advantages. But how does ACH stack up against Virtual Cards, whose virtues we analyzed recently on our blog, Purchasing Cards vs. Virtual Cards for E-Payments?
Fraud & Security
Virtual Cards are, on the whole, more secure than ACH. These cards exist in digital format only and are created anew for each purchase a company makes. If Virtual Card data happens to be stolen, it cannot be applied to any other transaction. Businesses don't need to worry who they’re issuing Virtual Cards to nor how many employees have access to them because they have such limited and specific usage parameters.
ACH necessitates the sharing of sensitive banking information with the buyer. From there, the supplier must somehow store this information securely. In addition, both buyers and suppliers must remain diligent about updating banking details each and every time supplier bank information changes. Managing this over hundreds of relationships and across many different business units can quickly become overwhelming.
The dollars and cents
Virtual Cards carry with them the promise of rebates - the more the buyer purchases, the greater the rebates. Businesses shouldn’t choose Virtual Cards based solely upon projected rebates, as the cash distributed back to the buyer ultimately depends on a number of factors including how successful supplier onboarding is and which suppliers are targeted for card acceptance. But the appeal of these cash rewards - and how they can directly boost the bottom line - cannot be ignored.
ACH is not subject to interchange or assessment fees, which makes it a less expensive option than card payments. However, suppliers pay a monthly charge for using ACH and buyers may incur Non-Sufficient Funds charges starting at around $20 per occurrence if they don't maintain adequate funding in their account.
Virtual Cards equate to faster supplier payments and, in turn, better organizational cash flow. Funds can appear in suppliers’ accounts as quickly as the next day. They can then reinvest this cash in their business and pay employees and expenses.
Comparatively, ACH transactions can take 2 or 3 business days to materialize in the supplier’s account. Unless businesses are using same-day ACH processing, this means they don’t have access to the funds for those few days. If they have many ACH transfers processing from numerous buyers all at once, it can be difficult to manage their cash flow.
Float refers to the time it takes for money to leave one’s account. Virtual Cards provide the buyer with a cash float before they need to pay their monthly bill. This means they're able to hold onto and leverage that cash for a longer period of time.
ACH involves almost no float - the buyer has very little control over when funds are removed from their account. They must ensure the full payment amount is in their account the entire period in order to avoid overdraft charges.
As Virtual Cards become more ubiquitous (Mercator Advisory Group predicts they’ll grow 24 percent by 2020), suppliers who accept Virtual Cards will have a leg up on their competition. More buyers will seek to do business with them and percentage of spend may even become more concentrated with those who are willing and able to keep pace with the changing demands of business.
Today’s businesses require more than just low costs when considering commercial payment alternatives. The benefits above - greater security, rebate potential, faster payment turnaround, greater float, and competitiveness - make Virtual Cards an excellent choice when streamlining and simplifying B2B payments.