Make Cash Flow More Predictable


If you have customers paying you on a recurring basis, why not ask them to pay you electronically?  Not by them going online and making a payment, but rather whereby you actually debit their account for the amount they owe (Preauthorized Debit).  Instead of them “pushing” a payment to you, you are “pulling” it from them.  This is accomplished through the initiation of ACH debits, or electronic debits to their account, and using your bank as the conduit.  Your first step is to contact your bank and find out which options they offer.  Chances are that you will initiate these ACH debits by creating a “batch” through your bank’s online banking system or if the volume is small, you may initiate these items one-by-one (single item initiation) through online banking.  Yet another option for high volume is creating an ACH file (batch) through your accounting software.  Look in your software manual for “ACH file creation” or “NACHA file.”

Let’s say you have 10 clients who agree to have their account debited on the 5th day of each month.  You will need to have an authorization on file from your client giving you permission to send the debit.  Your bank should be able to provide you with a sample form (ask to speak to a Treasury Management representative).  The bank doesn’t need this form back, but rather you are to keep it in your client’s file for at least 3 years after your last electronic transaction with that client.  If you are originating ACH debits (or credits like Direct Deposit) through your bank, you in essence are warranting to your bank that you have permission to debit your clients’ accounts.   Ten transactions is a manageable amount and to accomplish the transfer, go into the “payments module” from your online banking menu.  Create a batch for those 10 clients by filling out the amounts you wish to be paid and then send the batch for processing.  The batch cannot be created unless you have your clients’ bank routing and transit numbers (R/T #) and their account numbers.  They do not have to have an account at your bank.  You might name this batch “monthly” and save it for repeat use in future months.

Let’s say only 4 clients wish to pay you electronically.  You might not want to create a batch but rather you would set each one of these clients up with their own template which allows you to do one debit at a time.  Each month you will access that client’s template and fill in the net debit amount before transmitting individually.

If your software can create an ACH file, let your bank know in advance that you will be sending a direct transmission of a standard NACHA file.  They will need to set up their system so it can receive your file transmission.

Regardless of your origination method, the electronic payment system or ACH system is a 2-day settlement system.  Since you want the money to be in your account on the 5th, you will need to execute these transactions by the evening of the 3rd.  If the 3rd is a holiday or a weekend, back it up one day for each day the bank is closed.

Electronic payments are commonplace these days and if you have a good relationship with your clients, they may allow this method of payment.  It would be worthwhile to survey your clients for their willingness because if you are successful in changing your process for receiving payments, you can have a much more predictable cash flow stream.

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