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How to Pay a Vendor via ACH

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The GoCardless content team comprises a group of subject-matter experts in multiple fields from across GoCardless. The authors and reviewers work in the sales, marketing, legal, and finance departments. All have in-depth knowledge and experience in various aspects of payment scheme technology and the operating rules applicable to each. The team holds expertise in the well-established payment schemes such as UK Direct Debit, the European SEPA scheme, and the US ACH scheme, as well as in schemes operating in Scandinavia, Australia, and New Zealand. See full bio

Last editedJul 20223 min read

From checks to credit cards, businesses have multiple options when it comes to paying the bills. ACH transfers provide a simple way to pay vendors electronically, but how does this payment method work? Here’s what you need to know about how to pay a vendor via ACH, including the best way to get started.

How to use ACH to pay vendors

Your accounts payable is adding up, so it’s time to start paying vendors. Have you considered using an ACH transfer? ACH, or Automated Clearing House, is the primary electronic payment network used in the USA. When you pay using ACH to vendor transfers, your money is transferred electronically from bank to bank. The funds leave your business bank account and are deposited into your vendor’s bank account using the ACH network.

There are a few rules to keep in mind when paying vendors using ACH transfers.

ACH transactions involve strict cut-off times for payment processing. As instant ACH transfers are not available, if you miss the cut-off time, your payment won’t be processed until the next day.
You can’t complete an ACH transaction if you have insufficient funds in your bank account.
You can only pay vendors with US bank accounts using this method.
Some financial institutions place daily and monthly limits on ACH transfers.

To make an ACH payment, you’ll need to ensure there’s ample time for payment processing to meet your vendor’s payment deadline. You’ll also need to make sure you have enough money in your account to cover the payment, and that you haven’t reached your monthly limit.

ACH to vendors vs wire transfers

Wire transfers also involve moving money between your business bank account and your vendor’s bank account. However, wire transfers are processed in real time, making them a faster option than an ACH transfer. By contrast, an ACH transfer can take anywhere from one to three business days depending on cut-off times. For same-day processing, a wire transfer is a better option, but it also involves much higher processing fees for this service.

Benefits of ACH payments

One of the primary benefits of ACH transfers is that they involve lower transaction fees, particularly in comparison to credit card payments and wire transfers. Processing fees will vary depending on your financial institution’s own policies, but many banks offer free ACH transfers.

Another factor to consider is timing. While ACH payments take longer to process than credit card payments or wire transfers, they’re faster than paying vendors with a paper check. Because the transaction is completed electronically, it takes less time than the physical handling and processing that a check requires.

The third main benefit of paying via ACH is due to its security. Payments are submitted and received electronically using a strict set of security standards and protocols over the ACH system. This is just one technique to reduce fraud.

How to verify vendor ACH information

To get started with sending ACH payments, you’ll need to obtain the relevant banking details for each payee. You can do this with an ACH letter to vendors asking for their information. A secondary benefit of ACH letters is that they deal with the question of how to verify vendor ACH information for fraud prevention purposes.

ACH letter to vendors

So, what goes into an ACH letter to vendors? If you look at any sample letter to vendors for ACH payments, you’ll see blank spaces asking for the following details:

Date
Vendor name
Vendor address
Federal tax ID number
Bank name and address
Bank account number
ACH routing number
Contact details
Signature

You’ll find a variety of sample letters to vendors for ACH payments online, which also include cover letter templates explaining the terms and conditions of your ACH transactions.

While there are many ways to pay your vendors, ACH transfers offer a simple electronic solution that reduces fraud using the trusted ACH system.

Alternative ways to pay vendors using ACH

If you regularly purchase from the vendor, another option is for the vendor to set up recurring payments via ACH Debit. This allows the vendor to collect the invoiced amount from you on the day it is due - with your authorization, of course. The benefit of this is reduced payments admin on your side, as bills are automatically settled.

GoCardless is a major provider of ACH Debit services, reducing time and stress spent on payments for businesses around the world.

We can help

GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.