U.S. companies doing business globally can reduce transaction costs, eliminate wire transfer lifting fees, and ensure their beneficiaries receive the full value of each payment by shifting selected cross-border transactions to international ACH.
“ACH” stands for Automated Clearing House, and in the U.S., it refers to a single domestic, low-value electronic payment system. However, “International ACH” is a bank service that allows payers to send electronic payments through the various individual ACH-like clearing systems overseas, such as Bacs in the United Kingdom, SEPA in the eurozone and EFT in Canada.
International ACH transactions are a good fit for low-value, non-urgent payment types. While taking a little longer to deliver — two to four days as compared to same day for wires — they typically cost less than $5 apiece vs. $15 to $50 for a wire.
In addition, if you send a $500 international wire, the beneficiary typically receives a reduced amount — say $450 — due to lifting fees taken by intermediary banks involved in processing the payment. On the other hand, if you send an international ACH, the beneficiary is assured of receiving the local-currency equivalent of the full $500.
Successfully launching an international ACH payment program and achieving these benefits requires payers to engage in a series of important steps:
Start by locating payment beneficiary data within your workflow. For instance, is it in your ERP system? Or maybe in your treasury workstation? Some of the destination clearing systems require more information, such as the beneficiary’s mobile phone number or email address. Find out if your system is set up to store a range of payment instruction details.
The second aspect of this step is to identify wire payments that it would be beneficial to switch to international ACH. These will be low-value, non-urgent payments such as payroll and direct deposit transactions, payments to gig workers, travel and expense related transactions, and recurring vendor payments, among others.
Once you’ve determined where the payment beneficiary detail for the targeted payments reside, and what your system can accommodate, determine what changes you might need to make on the IT front to pave the way for international ACH. Investigate where those changes fit on your business’s IT roadmap.
Internally, make the business case for international ACH to leaders and other stakeholders. To gain their buy-in, illustrate the cost savings you will achieve by migrating to international ACH for the recommended payments, and explain how payees will benefit.
Also consult with the beneficiaries who you want to pay with an international ACH. Make sure they understand how they will benefit through the elimination of wire transfer lifting fees, and that they support the change.
Notify trading partners and other payees before you send the first international ACH to them to ensure they are prepared for the change. Remind them that the information reporting will likely look a bit different because it’s coming through a different payment network. But also reiterate the benefit to them of not having to pay any lifting fees.
Once you have identified the beneficiaries you want to pay with an international ACH, research what payment details you will need for each destination country. U.S. Bank provides a handy guide with that information that you can use to build data templates for each payee. U.S. Bank clients can build those templates within the SinglePoint® online banking platform.
Payers originating international ACH transactions through SinglePoint with U.S. Bank leverage built in pre-validations to ensure each transaction has the necessary payment detail in place to meet the requirements of the destination country’s payment clearing system. This allows you to fix any formatting errors before sending the payment. “Pre-validation ensures a high rate of straight-through processing,” notes Alyssa Demers, group product manager at U.S. Bank.
To assuage concerns about reliability, Demers recommends companies take a payment they’ve been making via wire — one that’s low value and non-urgent — and test sending it by international ACH. One U.S. Bank customer recently chose to start testing international ACH by sending cash infusion payments to a subsidiary. “That’s been very successful for them,” she says, “and based on that success they may look to expand to other international ACH use cases.”
For more information, an earlier article in Financial IQ describes the advantages of international ACH in greater detail. Contact a U.S. Bank Treasury Management Sales consultant or relationship manager for more information about initiating an international ACH program. To learn more, you can also visit the global payments page on our website.