Last year financial institutions, businesses, and consumers whouse the Automated Clearing House network for payment processinggained the ability to send and receive same-day ACH credits.Companies found this capability quite useful and soon were engagingin nearly 200,000 of these transactions daily, according toNACHA, a nonprofit thatadministers and facilitates ACH payments. And in a TD Banksurvey at the 2017 NACHA Payments conference, 40 percent ofcorporate finance professionals said that same-day ACH is among thetop tools for getting paid quickly and lowering the costs of thefinance function.

Following on the success of same-day ACH credits, the secondphase of same-day ACH processing will enable originators to submitsame-day debit requests beginning this Friday, September 15, 2017.As with the credits, same-day debits will be limited to domestictransactions of $25,000 or less.

Same-day debits are likely to increase demand for this paymentsrail, as NACHA reports that 60 percent of traditional ACHtransactions currently undertaken are debits that are processedeither in one to two days, or on a specified future date. This new,same-day payment capability will impact the finance functions ofmany U.S.-based organizations.

Now's the time for companies to determine whether they want tooriginate and/or accept ACH debits, and to determine how doing somight impact their customers, supply chain, employees, andliquidity.

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Preparing for Same-Day Debits

Companies must choose whether they would like to originatesame-day debits—which is to say, whether they would like toinitiate a debit from another organization's account—and whetherthey would like to allow trading partners to debit theiraccounts.

The new capability can be convenient, but some businesses willfind that same-day originations are unnecessary or are not useful.Companies are not obligated to allow any other parties to debittheir bank accounts, so finance executives should take time toevaluate the pros and cons of participating.

The primary reasons to usesame-day ACH debits are to save time and money; to improveconvenience for customers, particularly by providing a fasterpayment option for consumers; and to expedite payments to trustedpartners for goods and services. When a company allows a vendor toreceive payment by initiating an electronic debit to one of itsbank accounts, instead of waiting for it to drop a check in themail, the ACH debit process can significantly improve efficiencyfor both parties. Companies may find that same-day ACH debits areuseful for making state and local tax payments, loan payments, androutine vendor payments, among other transactions.

That said, corporate finance managers need to consider three keyfactors when deciding whether to participate in same-day ACHdebits.

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1. Timing

In making decisions about when and how to initiate transactions,invest excess cash, and/or fund accounts, corporate treasury andfinance professionals may now have to consider the possibility thatsame-day ACH debits could post to their accounts long after thebusiness day has ended. This makes it more difficult to predictclosing account balances. For the paying company, a surprise debitmight hamper its ability to conduct transactions, and might putbusiness checking accounts in overdraft, potentially incurring feeseither from the bank or from the payee for insufficient funds.

At the same time, organizations contemplating originatingsame-day ACH debits will need to account for how the cutoff timescould impact their cash flows. Same-day debits will have to beoriginated by early afternoon in the Eastern time zone, which meansearly deadlines for businesses in the Mountain and Pacific timezones. A West Coast company requiring same-day payment from avendor, for instance, would need to send the debit-origination fileno later than mid-morning local time.

Starting in March 2018, banks will be required to intraday-postsame-day ACH credits to accounts by 5 p.m. local time. However,this requirement will not apply to same-day debits. Financialinstitutions will be able to choose whether to intraday-post ACHdebit transactions during the day, so East Coast companies may findthat same-day debit settlements post later in the day than doclassic ACH transactions or wire transfers, which provide fundsimmediately but carry a higher transaction cost. Alternatively, anorganization might not be aware until tomorrow of debits that postto its account today.

Finance professionals need to speak with their banks as soon aspossible to understand the timing issues around same-day ACHdebits, and how those timing issues could impact their financialoperations.

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2. Controls

Organizations on both ends of a same-day ACH debit need to havetight controls on their liquidity and the process for initiatingtransactions. Does the paying company limit who can debit itsaccounts via ACH? Is its process sufficient to account for possiblelate-day ACH transactions, in addition to checks posting to theaccount?

Companies that will originate or accept ACH debits shouldconsider working with their vendors and business partners to createcontrols. A first step is to amend contracts to clarify whether andhow the business will originate or accept ACH debits. This willhelp reduce confusion, and possibly even ill will, among thetrading partners.

Treasurers who want to control their company's debit receiptsshould also speak with their banks to enroll in their ACH block orfilter services. An ACH block signals to financial institutionsthat the account either does not accept ACH debits or does notaccept any ACH transactions (it must specify which). A filter, bycontrast, allows certain preapproved ACH entries—such astransactions with a particular vendor, lender, or other specifiedparty—while blocking all other ACH debits. Without the appropriateblocks or filters, an ACH transaction can post to a company'saccounts at any time.

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3. Cash application

Along with the new settlement windows, another issue in thesame-day debit system is that data (e.g., originator, amount,invoice number) may not arrive on the ACH network at the same timeas the money. Treasury teams need to develop a process for handlingfunds that arrive without any remittance information attached. Thisis especially important because transactions process more than onceper day and could potentially cause a backlog. Organizations shouldnot let the convenience of same-day transactions derail their cashapplication processes.

For the debit originator, maintaining file accuracy isimperative. In particular, companies considering this new means ofreceiving payment should review their procedures for verifying thedate field in their ACH origination files. In the traditional ACHsystem, if users back-date or incorrectly date a file, thetransaction will still process the following business day just liketransactions that have the correct date. A treasurer couldrepeatedly submit a file that was dated back decades, for instance,and the network would still process it the next day. Once same-daycapabilities have been rolled out, however, a similar datingmistake might default to be a same-day transaction. To avoidunpleasant surprises for a customer or vendor, companies must takeextra care now to correctly date their ACH files, and mustcontinuously update recurring files with the proper entry date foreach submission.

On Friday, U.S. commercial payment systems are taking anotherstep toward faster payments, a necessity in today's 24-hourbusiness world. As demand for same-day services climbs, morepayment rails and systems are investing in similar capabilities.Through new technologies and functions, companies and consumerswill soon benefit from faster and easier payments.

Regardless of whether your business decides to receive or sendsame-day debits, the best first step is to consult with yourfinancial institutions to learn about their processes and determinehow best to effectively manage this change.

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Rick Burke is head of corporate products andservices for TD Bank. He is responsible for the bank's treasurymanagement services and non-retail (small business, government, andcommercial) liquidity management businesses. Burke is an activemember of both TD's U.S. and North American Executive PaymentsCouncils.