How to pay a vendor through ACH: A simple guide

Paying all your invoices on time is an important part of maintaining strong vendor relationships. Fortunately, you can accomplish that and save your company considerable time and money at the same time. 

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Paying vendors via ACH is faster, more secure, and more cost-effective than checks or wire transfers. ACH payments allow for direct bank-to-bank transfers, cutting down on manual processes and ensuring your vendors get paid on time.

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Let’s break down how ACH payments work, how to set them up for vendor payments, and how to troubleshoot common challenges.

What are ACH payments?

ACH payments are electronic funds transfers made through the Automated Clearing House (ACH) network. They’re regulated by Nacha (formerly the National Automated Clearing House Association), the organization that sets compliance and security standards for ACH transactions.

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Instead of sending paper checks or dealing with high wire transfer fees, businesses can use ACH to pay vendors directly—saving money and reducing processing time.

How ACH payments work

ACH transactions process in batches, meaning payments don’t move in real time. When you initiate an ACH payment, your bank sends the request through the ACH network. The vendor’s bank then processes the deposit, typically within 1 to 3 business days.

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ACH payments can provide predictability and security for your business, but setting up ACH correctly is key to avoiding delays or failed transactions.

How to pay vendors via ACH payments

Paying your suppliers via ACH can reduce costs, accelerate processing, and improve security. To start paying vendors via ACH payments, all you need to do is follow these six basic steps:

Step 1: Choose an ACH provider

Select a bank or payment processor that supports ACH payments. If you process high volumes of vendor payments, consider an accounts payable (AP) automation platform that integrates with your bank to streamline tracking and approvals.

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Before selecting a provider, compare:

• Fees: Some providers charge ACH fees per transaction, while others offer flat-rate pricing
• Processing times: Standard ACH takes 1–3 days, while Same-Day ACH (SDA) clears within hours
• Security features: Look for fraud detection, multi-factor authentication (MFA), and role-based access

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Reading ACH provider reviews online could give you an idea of which providers other businesses like yours are happiest with and why. 

Step 2: Set up your ACH payment system

Make sure your business bank account supports ACH transfers. Then, enter your account and routing number into your ACH payment system or accounts payable software to enable outgoing payments.

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If using an AP platform, connect it with your bank for automated invoice processing and reconciliation.

Step 3: Gather vendor banking details

To pay vendors via ACH, collect the following vendor information:

• Business name
• Bank name
• Bank account number
• ACH routing number

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Next, we’ll look at how you can verify this information.

Step 4: Verify vendor banking details

ACH payments can fail due to incorrect bank details. To prevent rejected transactions, validate the vendor’s banking information before processing payments.

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Verification methods include:

• Instant account verification: Confirms account ownership in real time
• Micro-deposits: Small test deposits let you verify bank details before processing real payments

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Now that you have everything set up and verified, you’re ready to start processing your ACH payments.

Step 5: Process ACH payments

Determine whether you need to send one-time or batch payments. If you pay multiple vendors, batch processing allows for more efficient payment scheduling. Next, enter the payment details, verify that everything is correct, and authorize the payment using multi-factor authentication or a digital signature. 

Step 6: Generate and send the verified ACH file

Once payment is approved, create an ACH file that includes:

• Vendor account details
• Payment amount
• Processing date

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Send the file to your bank or ACH processor, and track payment status to confirm successful transfers. Many banks and AP automation tools offer real-time tracking to help monitor transactions.

Why businesses should use ACH for vendor payments

Here’s why switching to ACH is an excellent choice for paying your vendors:

• Lower transaction costs: ACH payments cost between $0.26 and $0.50 per transaction, compared to $15 to $30 for wire transfers. Switching to ACH can help your business cut costs and smooth out cash flow.
• Faster processing: ACH payments settle in 1–3 business days, while same-day ACH can clear payments within hours. This ensures vendors receive funds on time and helps your business maintain strong supplier relationships.
• Enhanced security: ACH payments reduce the risk of check fraud, theft, and forgery. Transactions are encrypted and comply with Nacha security standards, with additional safeguards like multi-factor authentication and fraud detection tools.
• Automated, efficient payments: ACH transfers automate recurring transactions, reducing the administrative burden on your team
• Reliable tracking and reporting: ACH payments generate electronic records that make it easy to track transactions, confirm payment status, and reconcile financial statements. Many banks offer detailed ACH reporting, helping to reduce errors and disputes.

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It can be easy to fall into a pattern of doing things the way you always have in your business. But when a simple change can bring as many benefits to your organization as ACH vendor payments can, it’s a switch worth making. 

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Common challenges and how to overcome them

Here are some common challenges businesses face when paying vendors via ACH—and strategies for resolving them:

1. Incorrect or outdated vendor bank details

ACH payments can fail due to incorrect routing or account numbers, causing delays and additional fees. Vendors may also provide outdated banking details or make entry errors. 

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To prevent failed transactions, use bank account validation tools like instant verification or micro-deposits before processing payments.

2. Vendor reluctance to accept ACH payments

Some vendors hesitate to switch from checks or credit cards due to habit or security concerns. To encourage ACH adoption, emphasize the faster processing times, lower fees, and reduced fraud risk. A simple digital onboarding process can also make the transition easier.

3. Fraud and unauthorized transactions

ACH payments can be vulnerable to payables fraud, phishing attacks, and account takeovers if banking details are compromised. To protect payments:

• Implement ACH Positive Pay, a fraud prevention banking service allowing businesses to review and approve transactions before they clear
• Use secure portals to collect and store vendor banking details
• Restrict ACH access to authorized personnel only

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To further streamline ACH vendor payments, consider using an AP automation platform. Automated approval workflows speed up processing, while real-time tracking provides visibility into payment status. Integrated bill payment tools can also help manage multiple vendor transactions in one place.

Automate your vendor payments with ACH and Ramp

Making the switch to ACH payments is a simple way to save your business time and money, improve vendor relationships with timely payments, and prevent fraud. 

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Ramp Bill Pay, our AP automation software, streamlines the payment process by integrating ACH or any other payment type with your AP workflows. Your AP team can reclaim the time spent on manual busywork and gain real-time visibility into every step of the payment cycle. 

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Ramp Bill Pay provides:

• Customizable approval workflows that keep invoices moving quickly toward payment
• Invoice processing automation and one-click syncing with your ERP
• Automated 2-way and 3-way matching to catch errors quickly and easily before you pay

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How much time and money could your AP team save by processing ACH payments on Ramp? Try Ramp Bill Pay and see for yourself.