Payment Waterfall
A payment waterfall is the ordered sequence of payment rail attempts for a given transaction — defining which rail is tried first, which is the fallback, and under what conditions each subsequent rail is attempted.
In AP automation and B2B payments, the payment waterfall determines the sequence: try VCard first (highest revenue), fall back to ACH if declined, use check as the last resort. The waterfall logic is where most of the revenue engineering in AP programs happens — because the order of rails, the fallback logic, and the exception handling determine which percentage of payments land on each rail.
Waterfall design factors: supplier preferences (some won't accept VCard), payment amount (wires for large amounts), speed requirements (RTP/FedNow for urgent), cost tolerance (checks are expensive but sometimes unavoidable), and revenue optimization (VCard generates interchange; ACH can generate monetized payment fees).
Common waterfall failures: programs that don't have an explicit waterfall default to the cheapest or easiest rail, not the highest-revenue rail. Programs that put ACH before VCard leave interchange revenue on every eligible transaction. Programs without exception handling leave failed payments in a manual queue that grows unbounded at scale.