My Bank Account Says Pending Ach Activity

Commercial online bill pay: efficiency, control and less risk.

Financial managers in today’s payments environment already
understand many of the benefits afforded by emerging online bill pay
services for businesses. They have likely utilized consumer bill pay
services and see the opportunity to add efficiency and control to their
company’s financial operations.

Yet, many businesses still operate using a traditional bill payment
system, which consumes their employees’ time and can put their
company at risk for fraud. As banks begin taking a more holistic
approach to payments, it will be crucial for companies to examine their
bill pay scheme and determine if online bill pay is right for their
business.

Pitfalls of Traditional Manual Bill Payment

The emergence of business bill pay–commonly referred to as
“commercial online bill pay”–can be traced to the realization
among growing businesses that they need a better, more efficient way of
paying bills than the decades-old process of writing and mailing checks.

Writing and mailing checks to make business payments is not only
time consuming, but also increasingly expensive, as it requires
companies to buy and store check stock and envelopes while also paying
for postage at an ever-escalating cost.

Plus, paying by check offers little control over when payments
settle and when funds are debited from a company’s account since
mail delivery times can fluctuate.

Reconciling paper payments is also challenging. When businesses
mail a payment, confirmation of receipt often requires a phone call to
the vendor. It’s either that or wait until the end of the month and
confirm receipt when the company’s bank statement arrives.
Furthermore, issuing paper checks to pay bills presents a significant
fraud risk, easily outdistancing all forms of electronic payment.

Most small and middle-market businesses are looking to grow.
Indeed, in the 2011 Year-End Economic Report, issued by the National
Small Business Association, 47 percent of small business owners said
they expect growth opportunities in the coming year while 56 percent
projected an increase in revenues. When growth is achieved–and
companies add more payees and payments get bigger–the inefficiency,
cost and risk related to paper bill payments all get magnified.

Online Bill Pay–For Businesses

Fortunately, there is now a better, automated way to initiate and
manage commercial bill payments. Banks now offer commercial online bill
pay services that enable companies to pay their bills in a secure,
encrypted environment.

Commercial online bill pay services look and feel a lot like the
consumer online bill pay services that many business financial managers
have been using for years to manage their personal bill payments.

Like consumer bill pay services, business bill pay allows
businesses to reduce the time spent on bill payment and gain more
control over when payments are delivered. Paying bills
electronically–whether personal or business bills–also protects the
environment by reducing the impact of paper-intensive processes.

Online bill pay is additionally a cost effective alternative to
traditional payments. A 2011 white paper by PayltGreen–an industry
group that promotes the positive environmental impact of e-billing and
e-payments–notes that the cost savings of e-billing is estimated to
range from a quarter to a dollar per bill.

At the same time, emerging commercial online bill pay services are
more robust than consumer bill pay services and include features
designed to help address the challenges noted above that businesses face
in reconciling bill payments and reducing the fraud risk.

As a result, industry studies reveal a growing demand for
commercial online bill pay. For example, a 2011 survey of more than 400
small businesses conducted by CashEdge Inc., a division of Fiserv Inc.,
revealed that 19 percent of respondents already leverage Automated
Clearing House (ACH) transfers for vendor payments and 38 percent more
would do so if it were available to them. In other words, more than half
of respondents (57 percent) were sold on the concept of commercial
online bill pay.

Getting Started and Initiating Payments

To get started using a commercial online bill pay service, a
company must first load into the application all of the information
necessary to pay its regular vendors–including their names, account
numbers, etc. This is often handled by the bank provider’s
implementation group. Some services also have a payee import feature
that enables a company to import all that information directly into the
application from common accounting software programs.

Companies can then establish payment amounts and dates for
regularly recurring payments and have the service initiate them
automatically. Whenever they need to initiate a non-recurring payment,
they can manually schedule the payment from their current vendor list.

Typically, payments are processed and delivered through the ACH
network, although some bill pay services give companies the option of
sending the payment by paper check to satisfy vendors who want to be
paid that way. Commercial online bill pay services also allow authorized
employees to add new payees to the system and begin initiating payments
to those vendors at any time.

Monitoring the Progress of Payments

An online hill pay service enables businesses to track the progress
of payments in a way that’s not possible in a manual check payment
environment. Instead of telephoning a vendor or waiting until a bank
statement arrives, a financial manager using a commercial online bill
pay service typically receives an email notification that an ACH payment
has been delivered, including a confirmation number.

Additionally, companies can proactively monitor the status of
payments. Once logged on to the application, an authorized financial
manager typically can view a list of transactions scheduled to be
processed, as well as a list of transactions that have been recently
processed. In this way, the application enhances a company’s
ability to reconcile payments and establish its cash position.

Some commercial online bill pay services also offer a calendar of
upcoming scheduled payments, helping companies forecast their future
cash position.

Ensuring Audit Control, Mitigating Fraud Risk

A commercial online bill pay service also offers fraud and audit
controls unavailable in a paper environment. These applications are
different from consumer services in that they allow companies to
establish different permission sets allowing employees to engage in
various system activities.

For instance, the company’s application administrator can
establish who in the company can initiate bill payments, which vendors
they can pay and the size of the payments.

Additionally, a company can designate payment approvers for dual
authorization. Bill payments can be initiated, but they won’t be
released until the approver–who may or may not be in the same office as
the employee initiating the payment–logs into the application, notes
there is a “payment waiting approval” and reviews and submits
the pending payment.

This process is designed to ensure that every payment is
authorized, in the correct dollar amount and directed to the right
beneficiary account.

Automatic email notifications available through these services can
bolster security as well. In addition to notifying companies when a
payment is delivered, some services are able to notify designated
individuals when a payee has been added to the application, so they can
review and activate the new payee.

Robust custom reporting capabilities also enhance audit control.
For example, a company could pull a report on all of the bill payments
scheduled by a particular employee–or all of the payments exceeding a
certain dollar amount–during a designated time period.

Payroll Deposit, Too

Some commercial online bill pay services also offer an avenue for
starting a direct deposit of payroll program. Companies can eschew paper
paychecks in favor of ACH payroll deposits.

Electronic payroll deposits offer many of the same benefits as
electronic bill payments. They are less time-consuming and less
expensive to administer and offer greater control over the timing of
delivery.

Considering the in of paying employees on time, the latter is
particularly beneficial. This optional capability is governed by all of
the same security and control procedures as other bill payments, so
companies can closely monitor whether all of the people they are paying
are legitimate employees and all of the payment amounts are appropriate.

Adoption Within Industries, Trends

Adoption of commercial online bill pay has been particularly strong
in industries where businesses commonly have multiple locations. Some of
these include health care and social assistance, professional scientific
and technical services and wholesale trade.

Companies in these business segments appreciate that they can have
an associate at one location schedule a payment and another associate
(or possibly a manager) at a different location approve it, with
transaction status information and other reporting being shared through
a secure Internet connection.

The 2010 Federal Reserve Payments Study, released in 2011, revealed
that between 2006 and 2009 ACH transactions grew at 9.4 percent per
year, while the number of business-to-business checks dropped from 8.3
billion a year to 7.9 billion. These trends bode well for continued
growth and acceptance of commercial online bill pay.

Another trend to follow is the evolution of commercial online bill
pay. Going forward, look for banks to take a more holistic payments
approach and add accounts receivable functionality to this service.

Casey Wilcox is senior vice president and head of payables and
international product at Capital One Bank. Lin Lewis is a commercial
bill pay product manager at Capital One.