What is ACH and how does it function in B2B environments
ACH stands for Automated Clearing House, a secure electronic network designed to process large volumes of transactions in batches. Initially developed in the late 1960s, ACH payments offer a way to transfer funds from one financial institution to another without using physical instruments. In the United States, this network is governed by NACHA, and it enables a range of transaction types, including payroll direct deposit, vendor payments, mortgage installments, and utility bills.
In a B2B setting, ACH is primarily used for disbursing funds to vendors and suppliers. It offers a low-cost alternative to checks and credit cards, particularly for recurring or scheduled payments. ACH payments are routed digitally from the payer’s bank account to the recipient’s bank account, typically completing within one to three business days for standard transactions, though same-day ACH is also available under certain circumstances.
A major advantage of ACH is its cost structure. Transaction fees usually fall between 20 cents and $1.50, depending on the provider and the type of transfer. This makes it significantly more economical than wire transfers or credit card payments, which can carry fees of 1.5 to 3.5 percent of the transaction value.
The growing appeal of ACH payments
The last decade has seen a marked increase in ACH adoption among businesses. This growth is driven not only by cost efficiency but also by technological advancements in enterprise resource planning systems and accounting software that integrate seamlessly with ACH networks. In 2019, the ACH network processed 24.7 billion payments valued at more than $55 trillion. Of these, close to 4 billion transactions were in the B2B category, signaling strong momentum.
Even during the global disruptions of 2020, ACH continued to grow. In the second quarter alone, the network recorded 6.6 billion payments—a 7.9 percent increase compared to the same period the previous year. This resilience and adaptability further highlight ACH’s importance as a backbone for digital business transactions.
Beyond volume and cost savings, businesses appreciate ACH for its predictability and built-in traceability. Payment confirmations and tracking help accounts payable teams reconcile payments faster and reduce errors. Additionally, ACH is generally considered secure, as it uses encrypted channels and authentication procedures to minimize the risk of unauthorized transactions.
When ACH is the optimal payment solution
For businesses seeking to improve their cash management, ACH provides a high degree of flexibility. It is especially useful for scheduled, non-urgent payments such as monthly retainers, supplier invoices, lease payments, and recurring expenses. The ability to pre-program payments means fewer missed deadlines and better relationships with partners and vendors.
ACH is also ideal for companies looking to reduce administrative overhead. Compared to writing and mailing checks, ACH eliminates the need for paper supplies, postage, and manual bank runs. With the push of a button, a batch of payments can be authorized and sent, saving countless hours of staff time.
Another area where ACH shines is in the realm of data transparency. Many ACH formats, such as CTX (Corporate Trade Exchange), allow for detailed remittance data to accompany payments. This facilitates faster reconciliation by vendors and reduces the back-and-forth typically associated with paper checks.
Moreover, because ACH payments are reversible in the case of fraud or error, they offer more control and recourse than wire transfers or mailed checks, which may not be recoverable once dispatched.
The persistence of paper checks in modern business
Despite all the technological and financial advantages of ACH, paper checks continue to play a role in B2B finance. Their longevity can be attributed to habit, compatibility, and specific use cases that are not easily replaced by digital alternatives. Paper checks have existed in business since the 1600s, and many organizations still rely on them because of legacy systems or vendor preferences.
According to the AFP, while check usage has declined significantly over the past two decades, nearly 42 percent of B2B payments were still made via paper check in 2019. Moreover, over 80 percent of businesses surveyed at that time continued to use checks in some capacity. These numbers illustrate that while ACH is growing, the check still has a substantial foothold.
Part of the reason lies in vendor acceptance. Some suppliers are hesitant to share banking information due to security concerns or internal policies. Others lack the infrastructure or technical know-how to integrate ACH into their operations. In such cases, checks remain the default option.
Operational and tactical benefits of paper checks
From a business operations standpoint, paper checks offer several benefits. For one, they are simple to issue and widely understood. Staff across departments know how to process a check, and the physical nature of the payment can be appealing to those who prefer tangible financial records.
Paper checks also provide control over timing. Because a check must be mailed and then deposited, it allows payers to manage cash flow more precisely. This practice, often called “float,” can give businesses additional time between initiating a payment and the funds clearing their account.
For organizations that process a low volume of payments or work with independent contractors who do not have business bank accounts, checks can be a convenient option. They can also be used as a stopgap in cases where ACH systems are down or undergoing maintenance.
Checks are also effective for recordkeeping. When paired with check imaging and reconciliation software, they offer a clear audit trail that can be useful for financial reviews and tax filings. Physical checks provide undeniable proof of payment when digital records are inaccessible or disputed.
Challenges and costs associated with paper checks
While checks may offer some convenience and familiarity, they also come with notable drawbacks. The most obvious is cost. Between printing, envelopes, postage, and labor, the average cost of issuing a check can range from $3 to $10. For companies processing hundreds or thousands of payments each month, this can add up quickly.
There are also time delays inherent in check processing. Delivery via postal service takes time, and so does manual deposit and clearing at the recipient’s bank. These lags can cause frustration and cash flow complications for vendors and suppliers waiting to be paid.
Security is another major concern. Checks can be intercepted, altered, or fraudulently reproduced. Check fraud, including check washing and counterfeiting, continues to be a multimillion-dollar issue for businesses and financial institutions. Positive pay services and secure check stock can mitigate these risks, but they add to the overall expense.
Moreover, processing paper checks often requires more staff involvement than digital payments. Manual entry increases the risk of error, and misfiled or lost checks can lead to disputes that take days or even weeks to resolve.
Comparing ACH payments and paper checks side by side
When evaluating the two payment options, it helps to compare them across several key dimensions: cost, speed, security, convenience, and vendor acceptance.
ACH is generally cheaper, with lower processing fees and fewer physical materials involved. It’s faster in terms of transaction settlement once processed, although setup and batch processing can add time in some cases. Security is typically stronger with ACH due to encrypted transmission and authentication protocols.
Checks, while more expensive and slower, still offer a level of familiarity and flexibility that some businesses value. They are often accepted by vendors who are not ACH-enabled and provide a physical payment trail that is easy to document and audit.
Vendor preference plays a crucial role in this decision. While many suppliers are migrating toward electronic payments, a significant portion still expects or requests checks. Businesses must balance internal efficiency goals with the realities of supplier readiness and trust.
Use cases where checks might outperform ACH
Though ACH is preferred in most modern payment strategies, there are specific scenarios where checks still outperform. For example, when dealing with a new vendor who hasn’t yet provided bank information, a check is often the fastest way to initiate payment.
Similarly, for international payments where domestic ACH doesn’t apply and where wire transfer costs are prohibitive, a check might be the next best option. Also, in industries where physical documentation is required for compliance or auditing, checks can play a supplementary role.
Temporary outages in digital systems or disruptions to ACH networks can also necessitate fallback options. Having a paper check process in place ensures continuity of operations during such incidents.
From Strategy to Execution
The historical context and comparative advantages of ACH payments and paper checks. The next challenge for finance leaders is transforming that understanding into an efficient, risk-aware payables engine.
Breaks down the practical tasks required to embed either payment method—often both—in modern accounts payable operations. Each section focuses on a discrete building block, so controllers and treasury managers can adapt the guidance to their workflow complexity, transaction volume, and regulatory environment.
Evaluating the Current Payables Landscape
Before introducing or expanding electronic disbursements, a business must document how money currently leaves the organization. Start by tracing every step from invoice receipt to settlement. Note which channels are in play, what approval gates exist, and how frequently exceptions arise.
Capture the human touchpoints, any manual data entry, and dependencies on external vendors such as print-and-mail houses or banking portals. This process map clarifies bottlenecks, highlights compliance gaps, and reveals quick wins—like moving low-value, high-frequency stipends from paper to ACH.
Building a Cross-Functional Migration Team
Successful payment modernization rarely happens inside finance alone. Form a project group that includes procurement, IT, internal audit, and supplier-facing account managers. Each discipline contributes unique insight: procurement understands supplier leverage; IT manages ERP or treasury system connectivity; audit enforces segregation of duties; account managers handle conversations that influence vendor acceptance of ACH enrollment. A defined steering committee keeps the initiative aligned with organizational risk appetite and budget constraints.
Supplier Master Data as the Cornerstone
Every electronic payment program succeeds or fails on the integrity of supplier records. Duplicate vendor IDs, outdated addresses, or partial bank credentials introduce exceptions that erode efficiency. Begin with a cleanse: purge dormant suppliers, merge duplicates, and standardize naming conventions.
Next, create a mandatory data dictionary detailing which fields are required for ACH versus checks—routing number, account number, account type, currency code, and preferred remittance channel. Implement validation rules, such as checksum algorithms for routing numbers, to catch errors at the point of entry rather than after a payment file is rejected.
Secure Collection of Banking Details
Convincing vendors to share sensitive account data demands both trust and convenience. Avoid email forms or spreadsheets; instead, roll out encrypted self-service portals or third-party onboarding platforms that store credentials in tokenized form.
Offer two verification options: micro-deposit confirmation, where the supplier validates two small inbound credits, or prenote transactions that test the account’s ability to receive funds. Whichever path is chosen, clearly communicate timelines so vendors know when to expect their first live ACH payment.
Banking Connectivity and File Transmission
Organizations typically choose among three architectures to originate ACH batches. The simplest is a manual upload to an online banking portal—quick to deploy, but susceptible to formatting errors and reliant on staff availability.
A more scalable model is host-to-host connectivity, where the ERP pushes NACHA-formatted files directly to the bank through sFTP or API calls; this reduces human intervention and supports higher volumes. Sophisticated treasury environments may adopt a payment hub that aggregates multiple banks, currencies, and payment rails behind a single interface, enabling real-time status monitoring and automated fallback routing if a file fails.
Understanding Payment File Formats and Remittance Data
Not all ACH files are created equal. Corporate clients often use the CCD format for straightforward value transfers, while CTX supports up to 9,999 addenda records—enough detail to automate downstream matching in a supplier’s receivables ledger. Decide early which format best suits your vendor population and accounting system.
For paper checks, ensure that invoice numbers and discount terms print on the check stub or are included in an accompanying remittance advice. Consistency in data fields is crucial for minimizing inquiries from suppliers who cannot reconcile deposits to open invoices.
Designing Approval Hierarchies and Segregation of Duties
Internal controls protect against both error and fraud. A robust workflow separates data entry, review, and release. For example, accounts payable staff assemble the payment batch but cannot transmit it; treasury verifies funding and releases the file; a third party such as internal audit reviews daily logs.
Implement dollar-based escalation thresholds—for instance, any single payment over a predetermined limit requires two officer signatures. For paper checks, combine positive pay—where the bank verifies check number, amount, and payee before clearing—with secure physical storage of blank stock and dual signatures above a second threshold.
Exception Management and Return Codes
ACH returns occur for reasons ranging from closed accounts to insufficient funds. Each bank assigns a return code that signifies the issue. Build an automated alert that routes these codes to the payables team along with recommended actions: update banking details, contact the vendor for alternative instructions, or initiate a reversal if fraud is suspected.
Paper check exceptions include stop-payment requests, stale-dated items, or duplicate presentments. Align the resolution path with existing incident-management tools so root causes—like outdated vendor information or system glitches—feed continuous-improvement dashboards.
Reconciliation and Cash-Application Automation
The value of faster payments evaporates if reconciliation remains slow. Integrate incoming bank statement files with the general ledger as closely to real time as possible. For ACH, use trace numbers to auto-match debits against payment records.
If vendors return a CTX addenda record, those details can flow into accounts receivable, closing the loop without manual intervention. Regularly schedule unmatched-item reviews and establish service-level agreements that govern how quickly discrepancies must be resolved to keep monthly closes on track.
Treasury Visibility and Cash-Flow Forecasting
Electronic payments compress settlement windows, which tightens the feedback loop between payables and cash management. Treasury needs dashboards that display upcoming ACH batches, outstanding paper checks not yet cashed, and expected return items. This rolling view informs borrowing decisions, overnight investments, and foreign-exchange hedging.
Integrate the payment hub or ERP with treasury-management software so projected outflows feed directly into cash-position worksheets, eliminating the need to chase spreadsheet updates across departments.
Managing Cross-Border Transactions
Domestic ACH is governed by NACHA rules, but international payments introduce extra layers. Global ACH services—sometimes called international EFT—can route funds to certain countries at relatively low cost but may take days to clear. Alternative routes include wires, card-based push payments, or local check issuance through correspondent banks.
Map each supplier’s jurisdiction against available rails, factoring in speed, cost, and compliance requirements such as sanctions screening or tax withholding. Where neither ACH nor local electronic options exist, a paper draft mailed via courier remains a viable fallback.
Technology Stack Integration
Modernization often falters at the integration stage. Assess whether your ERP natively supports ACH file generation or requires a middleware layer. Confirm that your document-management system can attach remittance files to individual invoices and that your bank can return acknowledgments via API rather than manual download.
If a payment hub is in play, ensure it reconciles confirmation messages, returns, and bank-fee invoices automatically. Strong integration minimizes the swivel-chair effect, where employees hop across applications to collect the same data.
Metrics and Performance Indicators
To prove value and secure further investment, track indicators that resonate with executive leadership. Typical metrics include electronic-payment adoption rate, average cost per payment by channel, cycle time from invoice approval to settlement, error rate, and fraud incident frequency. Embed these metrics in a self-service dashboard.
Over time, refine targets—perhaps aiming for 85 percent ACH utilization among domestic suppliers or reducing average check issuance cost by 40 percent. High-quality data aids quarterly business reviews and drives accountability across teams.
Change-Management and Vendor Communication
Rolling out any new payment process is as much a people challenge as a technical one. Communicate early with internal users about the upcoming shift—why it matters, how it affects daily work, and whom to contact for support. Offer training sessions and step-by-step guides for data entry, batch approval, and troubleshooting common errors.
Externally, craft email templates that explain the benefits of ACH enrollment, provide onboarding instructions, and specify timelines. Consider tiered incentive programs such as early-payment discounts to speed supplier adoption. Recognize teams that hit conversion milestones and share success stories to sustain momentum.
Case Study: A Manufacturer’s Transformation Journey
A mid-size industrial parts manufacturer handled roughly 10,000 payments per month, 70 percent of which were mailed checks. Rising postage costs and frequent lost-check claims triggered a strategic review. The company assembled a migration task force, cleansed its vendor master, and deployed an encrypted portal for ACH onboarding. After three months, 55 percent of vendors had provided banking details.
The manufacturer then configured its ERP to generate CTX files, enabling rich remittance delivery that reduced reconciliation time on the supplier side. Within a year, electronic payments represented 82 percent of disbursements, yielding an annual savings of $280,000 in printing, postage, and labor. Fraud attempts dropped sharply because positive pay combined with fewer paper documents thwarted check-washing schemes. Importantly, the organization retained a controlled check process for contractors who lacked bank accounts, ensuring operational continuity.
Continuous Improvement and Future-Proofing
Even after a successful rollout, payables programs must evolve. Schedule quarterly audits of vendor master data, monitor changes in NACHA operating rules, and stay informed about new instant-payment services such as RTP and FedNow.
Pilot small batches on emerging rails to gauge whether their speed and irrevocability suit your risk profile. Continual refinement positions the payables function to respond swiftly to economic shifts, supply-chain disruptions, or regulatory updates without falling back on inefficient paper-based methods.
Strategic Decision Framework for Selecting ACH Payments or Paper Checks
As digital finance matures, the accounts-payable leader’s role expands from operational execution to architecting a multichannel payment portfolio. Structured approach for choosing the optimal rail—Automated Clearing House or paper check—for every supplier interaction. The framework blends financial modeling, risk assessment, supplier analytics, and corporate objectives so teams can align payment tactics with enterprise strategy.
Defining the Evaluation Dimensions
Before scoring payment options, define the variables that matter most to the organization. Typical dimensions include settlement speed, total cost of ownership, fraud exposure, supplier readiness, working-capital impact, regulatory requirements, and environmental footprint.
Each dimension receives a weight that reflects corporate priorities. For example, a firm with tight cash cycles might assign heavier weight to float benefits, while a public company with strict sustainability targets might prioritize paper elimination.
Quantifying Urgency of Settlement
Begin by mapping invoices to service-level commitments. Break payables into three urgency tiers: critical (same-day or next-day release), standard (three- to ten-day window), and deferred (anything longer). Critical items often include inventory releases, customs duties, and time-sensitive rebates.
Standard items cover routine supplier invoices, lease obligations, and contract retainers. Deferred items might include charitable donations or annual sponsorship fees. Assigning urgency scores ensures that payment rail selection supports operational continuity without inflating processing expenses.
Measuring Total Cost of Ownership
Calculate cost beyond the headline fee. For ACH, add banking charges, integration costs, exception handling labor, and periodic compliance reviews. For checks, include printing stock, envelopes, postage, positive-pay fees, and manual reconciliation time.
Create a cost model that scales with payment volume so finance can see where per-item economies of scale begin to favor digital disbursement. Present cost in currency terms and as a percentage of invoice value to highlight savings opportunities for high-ticket transactions.
Assessing Fraud and Security Risk
Both payment methods carry distinct threats. ACH risks center on credential theft and redirection schemes, while checks face interception, alteration, and counterfeiting. Build a risk matrix that captures frequency and severity of incidents, plus mitigation costs such as insurance premiums and monitoring services.
Assign a numerical risk score—lower scores for strong security posture, higher scores when vulnerabilities remain. Overlay this score onto payment groups to reveal high-risk/high-value intersections where extra controls or alternative rails are warranted.
Evaluating Supplier Digital Maturity
Supplier acceptance dictates real-world feasibility. Segment vendor files according to banking capability and technical sophistication:
- Integrated partners able to parse CTX addenda automatically
- Partially digital suppliers comfortable with CCD files and email remittance
- Paper-oriented vendors lacking electronic banking or internet access
Populate the segment table with transaction counts and dollar volume to visualize where migration will produce the biggest impact. Prioritize outreach to high-volume suppliers in the partially digital tier, as these usually convert with modest onboarding effort yet deliver substantial savings.
Calculating Working-Capital Implications
Payments influence the company’s liquidity profile. Compare timing differences:
- ACH debit on settlement day, shrinking float but improving predictability
- Mailed checks introduce postal and clearing lag, preserving cash a few extra days
- Same-day ACH or secure courier delivery eliminates float entirely but meets urgent delivery promises
Model the cash-flow curve under different rail mixes and overlay interest-rate scenarios to estimate opportunity cost. The Treasury can then decide whether conserving float outweighs the efficiency gains of electronic payments.
Incorporating Regulatory and Compliance Factors
Certain industries and jurisdictions impose mandates on data retention, privacy, and transaction reporting. Map compliance checkpoints for both rails—recordkeeping requirements for negotiable instruments, encryption standards for electronic files, cross-border reporting thresholds, and sanctions screening obligations. Where regulation favors one method, such as mandated e-invoicing in specific markets, adjust weighting to steer the decision matrix appropriately.
Reflecting Environmental and Social Goals
For organizations pursuing carbon-reduction pledges, shrinking paper consumption is a measurable win. Estimate the difference in envelope, paper, and fuel usage between ACH and checks. Convert that into emissions avoided and include it as an environmental score.
If the company monitors supplier diversity or social impact, note how digital channels can speed payments to small businesses and minority-owned vendors, easing their cash-flow constraints.
Implementing a Tiered Payment Policy
Armed with scorecard insights, draft a policy that assigns default rails based on supplier tier, transaction value, and urgency. A typical structure might read:
- Tier 1 suppliers (high volume, strategic): ACH with CTX remittance
- Tier 2 suppliers (moderate volume): ACH or checks, depending on readiness
- Tier 3 suppliers (one-off, international, or cash-only): Checks or local rail
Embed policy rules into the ERP so payable clerks select from preapproved channels rather than ad-hoc preferences.
Change-Management Blueprint
Introduce the policy through phased rollout:
- Pilot with a single business unit to refine workflows.
- Communicate benefits—cost savings, faster reconciliation, stronger controls—to stakeholders.
- Offer vendors early-payment incentives for timely bank-detail submission.
- Train accounts-payable and treasury on new approval hierarchies and exception handling.
- Monitor adoption metrics and adjust messaging to overcome objections.
Technology Enablers for Dynamic Channel Selection
Modern payment hubs can automatically choose the optimal rail by reading supplier attributes and invoice metadata. Important features include:
- Built-in scoring engine aligning with the weighted matrix
- Real-time bank-account validation and sanctions checks
- Auto-fallback rules: if ACH fails validation, print and mail a check without user intervention
- Dashboards showing rail-mix trends and savings achieved
Integrating such tools with ERP and supplier-portal ecosystems reduces manual decisions and accelerates continuous improvement.
Monitoring Performance Indicators
Post-implementation, track metrics that tie back to original objectives:
- Electronic adoption rate by supplier count and spend
- Average cost per payment across rails
- Exception incidence per thousand transactions
- Average days payable outstanding and float gained or lost
- Fraud attempts detected and losses incurred
- Paper reduction measured in sheets or carbon equivalents
Visualize trends in a business-intelligence platform and review results monthly to keep momentum.
Adapting the Framework to Instant Payment Rails
Real-time networks such as RTP and FedNow introduce new attributes—24/7 settlement, irrevocability, transaction-value caps. Add columns to the matrix for these rails, adjusting weights for security, cost, and liquidity. Pilot use cases such as emergency supplier payouts or customer refunds to understand operational impacts before scaling.
Case Study: Wholesale Distributor Rewrites Its Payment Mix
A regional distributor processed 120,000 supplier invoices annually, 65 percent via paper checks. Rising supply-chain pressures forced cash-flow visibility improvements. The finance team built a weighted scorecard with fraud mitigation and environmental targets high on the list. Phase 1 migrated top-twenty suppliers, representing 40 percent of spend, to ACH within six months. Phase 2 followed with mid-tier suppliers after a successful portal rollout. Within 18 months:
- Check volume fell by 78 percent.
- Total payment costs dropped $350,000.
- Reconciliation time shortened four days monthly.
- Carbon reporting credited finance with eliminating 1.2 million sheets of paper.
Storytelling these outcomes company-wide spurred further automation funding.
Future-Proofing the Decision Framework
Business priorities evolve; the scoring model must remain fluid. Schedule annual recalibration workshops to review new regulations, economic conditions, and supplier feedback. Update weights, integrate emerging rails, and retire underperforming channels. A living framework assures alignment between payment operations and enterprise goals year after year.
Conclusion
Choosing between ACH payments and paper checks isn’t a matter of simply embracing new technology or clinging to tradition—it’s about aligning your payment strategy with business objectives, supplier needs, operational efficiency, and risk tolerance. As this series has explored, ACH payments offer speed, security, and cost advantages that make them the preferred option in many modern B2B settings. They reduce processing times, enable stronger controls, and support digital transformation initiatives that finance departments are increasingly expected to lead.
However, paper checks continue to hold relevance in specific scenarios, especially where vendor preferences, regulatory limitations, or infrastructure gaps demand flexibility. The key to maximizing effectiveness lies not in choosing one method exclusively over the other, but in intelligently deploying both based on a strategic framework.
By evaluating payment urgency, supplier readiness, total cost of ownership, fraud exposure, and compliance demands, businesses can create a scorecard that guides decision-making in real time. With proper integration into ERP systems and payment hubs, companies can automate this selection process, ensure consistency, and monitor results against key performance indicators.
In the end, the goal is not just faster payments—it’s smarter payments. When companies build robust payables strategies that balance cost control, liquidity management, and relationship building, they gain a competitive edge. Finance leaders who actively manage the mix between ACH and checks aren’t just processing transactions—they’re shaping the financial agility and resilience of their organization in an increasingly digital economy.
