ACH vs. virtual cards and P-cards: Compare and contrast

As more and more businesses move away from paper checks, two primary forms of payments remain prevalent: ACH transactions and commercial card purchases (such as with P-cards and virtual cards).

Which option is right for you?

Both can be electronic. Both reduce fraud by eliminating the need to pay with checks. Yet, for the vast majority of B2B payments, commercial cards yield several benefits for both the buyer and the supplier that ACH transactions don’t match.

ACH vs. card payments: Comparison for both buyers and suppliers

Implementation 

• ACH: Each buyer/seller relationship must be set up separately with completed forms and agreements. For this reason, ACH is best for high-volume, recurring transactions. Setting up an ACH transfer for a single transaction is simply not cost-effective. 
• Commercial cards: Whether for one-time or recurring payments, these methods only require providing the supplier with the card number. And, if you’re using virtual cards, you can set up even tighter controls around the card number’s use, such as the specific charge amount, dates valid, MCC codes, and more.

Security

• ACH: Transfers require the buyer to have the supplier’s bank account information. Suppliers may hesitate to share their sensitive bank account information, especially with infrequent buyers. 
• Commercial cards: The supplier uses the buyer’s encrypted or tokenized card information, which reduces security and fraud risks. In addition, card payments for one-time use do not require suppliers to keep the card numbers on file, which eliminates Payment Card Industry (PCI) compliance issues.

ACH vs. card payments: Comparison for buyers

More security 

• ACH: The buyer has a risk associated with maintaining and updating the supplier’s bank account information. If current banking account information isn’t maintained, the ACH transfer will not occur or the wrong account may be credited. Additionally, with ACH transactions, the buyer assumes overhead and risks associated with validating the supplier’s bank account information to comply with the Office of Foreign Assets Control (OFAC) and the USA PATRIOT Act. 
• Commercial cards: The buyer isn’t required to store any supplier banking information. The merchant bank handles all of those requirements for the buyers.

Cash float

• ACH: There is limited cash float; it only takes 2–3 business days for the vendor to receive funds from the buyer’s debited checking account. Some banks even require the buyer to have sufficient funds available before the ACH payments are even processed. 
• Commercial cards: There is an average of 20 days’ float, depending on where in the statement cycle the charge is posted and the statement payment terms.

ACH vs. card payments: Comparison for suppliers

Transaction disputes 

• ACH: If there is a dispute over services or returned merchandise, ACH payments can be reversed by the buyer, simply removing the money from the merchant’s account. Although suppliers can pay for the extra service of blocking ACH debits, this requires using multiple checking accounts along with additional costs and reconciliation time. 
• Commercial cards: While buyers can dispute a commercial card transaction, the process allows for input from the merchant before the transaction is reversed.

Transaction costs

• ACH: Suppliers often think ACH transactions have lower costs than credit card transactions, but there are monthly charges for using ACH. In addition, ACH transactions are subject to Non-Sufficient Funds (NSF) fees if there aren’t enough funds in the buyer’s account, and fees for NSF transactions typically range from $20–$35 per transaction. More costs include additional employee time required to set up the ACH transactions for each buyer and employee time spent manually processing each transaction.
• Commercial cards: Sellers pay a processing fee for each commercial credit card transaction. Additionally, there are costs to issuers for producing and mailing physical cards. 

Remittance advice 

• ACH: The remittance advice sent with ACH payments is usually insufficient for automatic processing and, therefore, requires manual intervention. Some banks cannot display all the available information on the remittance advice, while others charge additional fees to display details. Also, with ACH, the remittance data is usually sent separately from payment, which complicates the reconciliation process. 
• Commercial cards: Transactions come with complete detailed information and typically do not require any manual processing. Plus, with card payments, remittance details in different formats are provided free of charge; with ACH transactions, receiving remittance details electronically typically requires a separate charge to the supplier.

Cash flow 

• ACH: ACH funds typically take 2-3 business days to appear in your bank account, and it may take 3-4 business days before you receive notice of a rejected transaction. In addition, suppliers can take advantage of reduced credit risk with card transactions over ACH. 
• Commercial cards: Cash flow, always a concern for accounts receivable, is improved by card acceptance. Since commercial card transactions clear in real-time, you will know immediately if a charge is approved or declined. The funds then appear in your bank account the next business day.

Conclusion

When making corporate payments, it’s important to weigh your options — and the pros and cons of each — to ensure that you’re maximizing accounts payable efficiencies for your organization. If you’d like to learn more about commercial card payments and electronic AP, contact us today. 

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The information in this blog post is for educational purposes only. It is not legal or tax advice. For legal or tax advice, you should consult your own legal counsel, tax and investment advisers.