What is Business to Business ACH? Process and Benefits

As a business, you can choose which payment methods to use for paying and accepting funds from other businesses. Business to business ACH is a cost-effective method that works well for making supplier or vendor payments for invoices and recurring payments. 

In this guide, we define and explain business to business ACH, including benefits and challenges. We also describe how B2B ACH works and how to pay vendors by ACH through the Automated Clearing House. 

What is Business to Business ACH? 

Business to business ACH is an electronic funds transfer (EFT) between the commercial bank accounts of the business payor and payee that’s made through the Automated Clearing House network and its member financial institutions, which are banks or credit unions. 

Although business-to-business ACH is an EFT, when comparing EFT vs. ACH, the term EFT is much wider, including wire transfers and other types of electronic transfer transactions to transfer money. ACH refers only to electronic bank-account-to-bank-account transfers through the Automated Clearing House network. 

How the B2B ACH Process Works

An ACH transaction for B2B payments that are Direct Payments may be either a Debit ACH or a Credit ACH. A Debit ACH means it’s a transaction initiated by the recipient to get funds from the payer’s bank account (Debit ACH) in a pull transaction. A Credit ACH is initiated by the payer to send funds to the recipient (Credit ACH) in a push transaction. Find more information about ACH Credit vs. ACH Debit. 

Nacha, the organization that governs ACH regulations in the United States, shows the process for How ACH Payments Work in an infographic. Nacha was originally known as the National Automated Clearing House Association. 

Understand setting up ACH payments for B2B use, including the steps involved. 

The B2B ACH process for a Direct Payment through the ACH Network is:

1. ACH authorization form completed
2. ACH transaction initiation through ODFI bank by the Originator with payment instructions
3. ACH payment files sent by ODFI through the ACH Operator to RDFI 
4. RDFI receives the payment files through the ACH Operator
5. RDFI deposits or withdraws bank account funds of the Receiver 

1 – ACH Authorization Form Completed

Written (or electronic) authorization must be provided to a financial institution for an ACH payment to occur. In AP automation software, the ACH authorization form information is submitted by each payee through a Supplier Portal. It includes their contact information, account name, business bank routing number, and bank account number when ACH is the preferred payment type. An ACH may either be made through a checking account or a savings account. On the authorization form, indicate which type of account is being used for the ACH. 

Nacha provides a Sample Direct Payment Authorization Form for ACH Debit transactions. This sample form indicates what is needed for an ACH transfer, including the required details and account information for each ACH authorization. 

Any company using ACH transactions can create an online template similar to this form to provide banking information and authorize ACH transactions from bank accounts. 

2 – ACH Transaction Initiation Through ODFI Bank by Originator

The business initiating the payment requests an ACH through its bank, which acts as the ODFI (originating depository financial institution) in the ACH payment system.  

3 – ACH Payment Files Sent by ODFI through ACH Operator to RDFI 

This ACH request that’s received by the ACH Operator from the ODFI is electronically sent to the RDFI (receiving depository financial institution) through the Automated Clearing House network. 

4 – RDFI Receives the Payment Files through ACH Operator

The RDFI receives the payment files sent by the ODFI through the ACH Operator. 

5 – RDFI Deposits or Withdraws Bank Account Funds of the Receiver 

The RDFI deposits funds to the Receiver’s bank account when its an ACH Credit or withdraws funds from the receiver for an ACH Debit. 

The Federal Reserve Board, through the Reserve Banks, serves as one of the two national ACH Operators in the United States:  

“The Reserve Banks and Electronic Payments Network (EPN) are the two national ACH operators. As an ACH operator, the Reserve Banks receive files of ACH payments from originating depository financial institutions, edit and sort the payments, deliver the payments to receiving depository financial institutions, and settle the payments by crediting and debiting the depository financial institutions’ settlement accounts. The Reserve Banks and EPN rely on each other to process interoperator ACH payments–that is, payments in which the originating depository financial institution and the receiving depository financial institution are served by different operators. These interoperator payments are settled by the Reserve Banks.”

How to Pay Vendors Via ACH

Steps for how to pay a vendor via ACH are:

1. Receive the vendor invoice and perform these invoice processing steps:
   1. Onboard the supplier with W-9 or W-8 forms and ACH authorization and routing/bank account payment information
   2. Validate the supplier 
   3. Match the invoice to a purchase order and receiving report (3-way matching)
   4. Check the invoice for errors
   5. Get the invoice approved for payment
   6. Schedule the payment date
2. Initiate ACH payment through the Automated Clearing House Network
3. Communicate payment status to each vendor
4. Record payments
5. Reconcile payment batches to the general ledger in near real-time

With Tipalti AP automation software, you can choose ACH payments as the preferred payment method during the supplier onboarding process through the portal. Invoice processing, ACH payment, and reconciliation are automated processes, saving your company time and money compared to submitting each ACH transaction individually directly to your business bank for invoice payments. 

Advantages of Business to Business ACH Payments 

The benefits of ACH payments for vendors include these advantages:

• Low cost compared to other payment methods 
• Quicker and less labor-intensive payment method than mailed paper checks
• Safer than using paper checks and wire transfers
• Display or communicate invoice receipt and payment status through a supplier portal for AP automation software, reducing responding to time-consuming vendor status calls
• Set up payment information once and pay vendors with efficient large batches when using AP automation software integrated with your ERP or accounting software

Companies that use ACH discover that ACH generally has lower transaction fees than most wire transfers and credit card payment transactions. Compare ACH vs. wire transfers. 

A payment processor charges ACH payment processing fees, wire transfer transaction fees, or credit card processing fees for these payment options. Some U.S. banks or financial institutions don’t charge fees for ACH transactions and others may offer deals for free wire transfers, depending on the type of wire. 

Compared to paper checks, ACH doesn’t require paper or a printer and ink (to help achieve ESG environmental goals and reduce office supplies expenses). Employee time is required to print checks, separate copies, print labels and stuff envelopes for payees, affix postage, and file extra copies of paper checks. ACH doesn’t require the hassle and extra time for employee trips to the post office for mailing, as do paper checks. 

Sending checks in the mail means that payees receive the checks later. Paper checks can be lost in the mail, stolen, or washed and modified to change the payee and amount, adding risk to the transaction. 

When wire transfers are sent, they may be lost in the process. If wire transfers are sent to the wrong payee or bank account, it’s possible that the transaction can’t be canceled in time to get the money back. When problems occur, banks charge expensive investigation fees that add cost to the transaction. 

Automatic electronic invoice receipt (via email, portal, or OCR) and payment status means your accounts payable team will reduce the need to respond to large volumes of time-consuming vendor status calls. With AP automation software, you’ll reduce end-to-end payables processing time by 80% and errors by 66%. Your company won’t need as much payables staff and your company may be able to reduce new hires. The software scales with growth. 

Modern AP automation software with ERP integration lets vendors choose a preferred payment method like ACH and accurately set up their payment information once through their customer’s supplier portal. The payment automation software for payables lets your business efficiently make scheduled payments to vendors in large batches of 1,000+ invoices if desired. You can also choose to pay single invoices if necessary for a specific purpose. 

Challenges of Business to Business ACH Payments

• ACH payments are only available for domestic U.S. transactions, although similar global ACH payments can be used in certain other countries
• To make or receive business to business ACH payments, businesses will need to obtain the business name, routing number, and bank account number of the payee and use them accurately
• Needing to use ACH verification processes for ACH payments 

Accuracy and security are important when making and receiving B2B ACH payments. Tipalti AP automation software lets payees enter their own routing and bank account numbers and enter their contact information through a guided self-service supplier portal when they choose ACH as their preferred payment method. The supplier portal also collects W-9 (or W-8) information and tracks supplier and independent contractor payments in simple reports for tax compliance. Tipalti software has enterprise-grade security. 

B2B ACH FAQs

Some frequently asked questions and answers about business-to-business ACH (B2B ACH) follow. 

What is business to business transfer? 

A business to business transfer of money for payment domestically in the U.S. is accomplished through a bank-account-to-bank-account transfer using the ACH system. In a business to business ACH (B2B ACH), companies can pay vendors via ACH, accept payments from customers, and schedule recurring payments for a subscription pricing model.  

What is an ACH transfer vs wire transfer? 

Comparing ACH transfer vs wire transfer, both are types of electronic fund transfers (EFTs) for making and receiving payments between bank accounts but they differ in cost, payment network used, and domestic U.S. only vs. global.  

ACH transfer is a simpler and lower-cost transaction processed through the Automated Clearing House for its financial institution members and their customers. Wire transfer is a high-cost payment method flowing through the SWIFT system or similar network, and sometimes using intermediary banks, that can be used for domestic and cross-border international payments. 

Which transaction types are allowed through ACH?

Domestic U.S. transactions using ACH credit or ACH debit are allowed through ACH. ACH transactions can be one-time or recurring. These ACH transactions can be designated as Same Day ACH for up to $1 million per transaction or Next Day ACH, using this ACH transaction schedule published by Nacha. Day means business day. 

Examples of B2B transaction types for ACH are:

• Payments to vendors, suppliers, and independent contractors like freelancers
• Subscription billing payments to SaaS companies
• Utility payments by businesses

Besides being used for business-to-business payments, ACH can be used for other purposes.

Non-B2B example uses of ACH by businesses:

• Employee direct deposit for payroll
• Tax payments to government entities and tax refunds

Examples of personal transaction types for ACH are:

• Bill pay
• Recurring rent or mortgage loan payments
• Recurring subscription payments for software or services
• Tax payments to government entities

How to Start Using B2B ACH 

Your business can make its B2B ACH electronic payments much more efficient by using Tipalti AP automation/payment software to pay vendors by ACH cost-effectively and in large batches. With Tipalti AP automation software, you can give payees a choice of six payment methods. Two EFT payment methods are ACH in the U.S. and global ACH to use internationally for SEPA-member countries in Europe or countries with other global ACH systems that work similarly to ACH in the United States. 

To learn more about B2B ACH electronic payments, download our eBook, “Comparing the Top Global Payment Methods.”