We want to begin paying vendors via ACH rather than paper check. We realize only a portion of them will accept ACH payment, while others will be content with paper checks...


Q. (cont.) We are a real estate company with about 150 separate companies, each with their own bank account. Here is my problem: we have a weekly check run and typically cut about 250 checks per week. These checks are generated by between 40 and 60 companies that have their bank accounts at a dozen different banks.

If I flag a vendor for ACH, our system will create a file for each payment generated for the vendor. Because I do not want to set up ACH payment capability at all of 12 different banks, it means if I flag a vendor as ACH, in any one week that vendor may be getting payments from multiple companies, only some of which I have set up ACH capability with those entities’ banks.

I need to avoid the situation where payments to a vendor flagged as an ACH vendor are generated by a couple dozen of our companies, only some of which have ACH capability set up at their bank. This would mean that the system is generating ACH payments to a vendor that we have no way to process at those companies' banks.

The way around this, I believe, is to determine which vendors choose to accept ACH payment, and to set up duplicate vendors in our vendor data base, with the duplicate vendor identical to the original vendor, but with “- ACH” after the name.

Then, when we enter invoices, if the invoice is addressed to one of our entities that has ACH payment capability, we will select the vendor with the “- ACH” rather than the normal vendor.

Do you believe this is a workable solution when we have payments going to an ACH flagged vendor, but not all of our companies have the ability to make payments by ACH? It means we will expand our vendor listing by duplicating those willing to accept ACH payments, but since our system treats a vendor as all or nothing, either all ACH payment or all paper check payments, if we have some companies paying the vendor by ACH and some companies paying that same vendor with a paper check, I see no other option than to set up two vendor labels in our system for each vendor, one flagged to pay with paper checks and one flagged to pay with ACH.

I assume each vendor would not have a problem processing some of our payments as check payments and some as ACH - they should not have any trouble getting both types of payments.

Please advise if you see problems with this as far as having the multiple vendors set up with different payment types flagged.

A. It sounds as though AP and the vendor master are centralized, serving the many companies, but the disbursements must be made through 12 different banks as associated with the 150 companies – is that basically correct?

The danger in setting up duplicate vendors is that you set yourself up for an increase in duplicate payments and even potentially for fraud.  Having two vendor records for the same vendor is not a good idea. 

(There may also be some confusion in the vendor’s AR, though you’re right that as long as the supplier is getting the money, it’s of comparatively little importance if it changes format from payment to payment.) 

One of our experts, Judy Bicking, faced a similar situation at Johnson & Johnson, when they created the shared services center (SSC) – rather than deal with 200 bank accounts, the SSC opened one bank account and they paid all locations from one bank. She says she entered each invoice into the business units in the system, which was tied to the business unit’s GL, then through the GL, each business unit funded the SSC checking account. (They had a daily check run of 2,500 checks.) Judy suggests this would be a better first step; from there you can move to ACH.

Another alternative: Close the banks that do not support ACH and open accounts with banks that do support it. If you go with one of the big banks, you may only need one new bank – and might enjoy benefits of reduced fees, services at no charge, better interest rates, etc.

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